The Distributional Consequences of Economic Growth and Public Spending Programs in Iran

This paper employs a quantile regression method and household expenditure surveys to assess the general equilibrium effects of public spending and social protection programs on household expenditure distribution in Iran. The approach captures the broad consequences of programs, taking into account their direct and indirect effects through price changes, interpersonal transfers, demonstration effects, and the like. We also control for and assess the role of household characteristics and geographic and time fixed effects. The case of Iran is interesting and important because in recent decades the country has experimented with new institutional arrangements to address poverty and has been relatively successful in this regard, as our findings confirm. Our study covers the 1993-2006 period. For policy analysis we a focus on 1998-2005, the so-called “reform period” in Iran. We find that growth has been unequalizing, but changes in education, government spending, and a unique agency established after the revolution of 1979 to provide social safety net have counteracted with that effect and raised the incomes of the bottom half of the population faster than the rest. The upper end of the distribution has also benefited somewhat, leaving those in the 50 to 85 percentiles behind.