Urban-Rural Welfare Inequality; a Study based on the Decomposition Model Analysis

This study by utilizing the data of micro-level statistics on households’ income and expenditure survey over 2005-2014 investigates the determinant of urban-rural welfare inequality in Iran’s household. One of the factors affecting the welfare gap (consumption) is income gap. For this study, we uses of Blinder-Oaxaca decomposition approach (inequality at mean consumption) and Machado-Mata decomposition (inequality of consumption at entire distribution). The result of Blinder-Oaxaca and Machado-Mata indicates that welfare gap has more decreased in 2014 than 2005 and also efficient gap has decreased because the human capital in rural area has increased. But, the comparison of Islamic economics and conventional economics shows that in Islamic economics, the discrimination is in favor of rural labor while in conventional economics the discrimination is in favor of urban labor. The efficient gap in Islamic economics is less than or equal to conventional economics. The main causes of efficient inequality are differences in the education of household heads and their income and family size of urban and rural households.