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Decomposition of welfare distribution in Iran

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  • Mazyaki, Ali
  • Davodi, Pedram

Abstract

After Hamilton (2001) and Costa (2001) many empirical and analytical studies (Gong and Meng (2007), Barrett and Brzozowski (2008), …) have manipulated and extended Engel's law to estimate CPI bias and regional price differences. However, there is not yet any study on Iran in which the biases in spatial prices or price indices are discriminated. In this study we suggest that bidimensional social welfare perspectives may contribute very well to policy implications intending to protect Iranian households. To do so, first, we use Hamilton's approach to estimate a Spatial Price Index (SPI) helping us to have a better household welfare criterion. Second, using a developed version of Gini bidimensional decomposition, we find the contribution of rural and urban areas to inequality. Our decomposition method is an improved version of Mussard (2004) bidimensional decomposition method. Our results indicate that while Iranian authorities repeatedly have claimed that income inequalities have improved after the targeted cutting of subsidies in 2011, the above improvement is due to a bias in regional price indices.

Suggested Citation

  • Mazyaki, Ali & Davodi, Pedram, 2014. "Decomposition of welfare distribution in Iran," MPRA Paper 59552, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:59552
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    References listed on IDEAS

    as
    1. Stephane Mussard, 2004. "The bidimensional decomposition of the Gini ratio. A case study: Italy," Applied Economics Letters, Taylor & Francis Journals, vol. 11(8), pages 503-505.
    2. Gong, Cathy Honge & Meng, Xin, 2008. "Regional Price Differences in Urban China 1986-2001: Estimation and Implication," IZA Discussion Papers 3621, Institute of Labor Economics (IZA).
    3. Dora L. Costa, 2001. "Estimating Real Income in the United States from 1888 to 1994: Correcting CPI Bias Using Engel Curves," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1288-1310, December.
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    More about this item

    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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