Comparing Iran's per capita welfare changes Due to Increase in Inequality in 2003 and 2011

The most important problem of Iran’s economy in 2010s was decline in financial strength of government for continuing economic subsidies, which led to failure to start and continue infrastructural and vital projects . Also, it changed the optimum social consumption habit . These reasons caused the government to start economic reform (such as liberalization of energy conduit prices ),which was called economic evolution plan, from the winter of 2010. Beside these reforms, external shocks such as oil price increase caused a deep effect on Iran’s main economic variables such as inequality. This research aimed to investigate the effect of inequality changes on the welfare per capita in this period . . In other words, the effect of changes in income distribution (inequality) on welfare on 2011 compared to 2003.
The marginal utility of consumption was used as the determinant of welfare per capita. To measure welfare, Bergson – Samuelson model was applied, which considers both effects of income on welfare and income distribution. The Bergson -Samuelson model’s marginal utility of consumption is generated from two parameters; the consumption per capita and the elasticity of marginal utility of consumption / income. The second parameter is an indicator for inequality. There are some different methods for calculation of the elasticity, but behavioral evidence and revealed social values approaches are two reliable of them which were used in this paper. Considering that welfare changes were calculated for a period of eight years, the results can be used in the long-term policy making.
The results showed that Iran’s welfare per capita decreased by 5.23 percent in 2011 compared to 2003 due to increase in inequality It is worth mentioning that in this period, inequality aversion increased.
The elasticity of marginal utility of consumption in Iran for 1965-2003 and 1982-2011 was equal to 1.56 and 1.92 respectively, which show inequality aversion. In fact, this aversion caused a 5.23 percent decrease in welfare per capita in Iran. Also, based on the revealed social values approach, the marginal utility of consumption elasticity is equal to 1, which is not reliable due to the high share of oil revenues on the government’s income.