Tyranny of numbers

No surprisingly, poverty rates are lower in Tehran than the other two regions.  Less obviously, we note that urban and rural areas have similar poverty rates.  The more noteworthy message of this graph, which is the subject of the election debates, is the decline in poverty after 2009, first because of oil-induced increase in household consumption, and cash transfers after 2010, when the economy faltered under the weight of the sanctions.

The press reports inside and outside Iran have produced much confusion, using unpublished evidence not subject to peer evaluation.  For example, according to Financial Times of October 25, 2013, “During Mr Ahmadi-Nejad’s eight-year tenure, the percentage of Iranian families living under the poverty line increased from 22 per cent to more than 40 per cent, according to [so and so], a prominent economist.”  Today’s Christian Science Monitor quoted another prominent Iranian economist with an unequally unfounded claim: “He estimates that Iranians’ purchasing power decreased sharply during Ahmadinejad’s tenure, by perhaps 50 percent to more than 70 percent, as inflation soared to 40 percent and sanctions bit.” To see that such claims are baseless see Figure 3 below.  Such exaggerations of the negative impact of Ahmadinejad’s policies on living standards by Rouhani’s supporters is the reason why Rouhani took the poor for granted and is now struggling to win their vote.

I do not know what poverty line the said prominent economist had used to arrive at a poverty rate of 22% in 2005, when Ahmadinejad took office — there is line that yield that number —  but no matter which line one uses, one cannot get to a poverty rate of 40% in 2013.  The same nonsense was repeated in New York Times (though in a well meaning attempt to argue that sanctions are hurting ordinary Iranians).

As you can see in the graph above, between 2005-2013 the poverty rate was cut by half, first because of rising oil revenues and later because f cash transfers, and this is independent of which poverty line one uses. The only way you can get the result reported in FT and NYT is to use a higher poverty line in 2013 than in 2005.  (This is because the distribution of per capita expenditures in 2013 stochastically dominates the distribution for 2013.) In Figure 2, I keep the poverty line fixed for all years at about $5 per person per day and convert household expenditures to constant 2015/16 prices using the Consumer Price Index.

The results clearly show that poverty rose in the two Iranians years 2014/15 and 2015/16 when Rouhani was in office.  There are good reasons why this happened.  Rouhani raised energy prices, by about 50%, which hurt the poor more than the rich, without compensation.  Since cash transfers were losing their value to inflation, poverty increased.  Now, Rouhani used the money from higher energy prices to fund an important expansion of health care, but those benefits do not show up in household expenditures and may even lower them.

I believe that Rouhani’s team trapped themselves by saying publicly and repeatedly that cash transfers were unacceptable as economic policy because they “fostered beggars.”  I have not seen any evidence of the effects of Iran’s cash transfers on the poor, other than they have lifted many out of poverty.  Rouhani’s take on the issue ignores tons of evidence in favor of unconditional cash transfers that has been produced in recent years, and the fact that they are increasing in popularity.

Turning to inequality, there is less room for disagreement because there is no poverty line to move around arbitrarily.  My favorite measure of poverty is the Palma Ratio, which I discussed in a previous post.  The graph below updates the data from that post to 2015/16.