Dynamic Poverty Decomposition in Iran's Four Development Plans: Based on New Six-Component Decomposition Method

Poverty decomposition provides useful information about the factors affecting poverty and helps the politicians to choose suitable poverty reduction policies. In this context, sectoral decomposition (Ravallion-Huppi, 1991) and growth–­equality decomposition (Datte- Ravallion, 1992) are the most widely used methods for poverty decomposition. But the ambiguous elements (such as residual and interaction terms) existing in these methods resulted in developing a new decomposition method by Fujii (2014). His decomposition method is residual-free and has some desirable properties including time-reversion consistency, and sub-period additivity. In the present study, following Fujii (2014) and using Iran’s rural and urban household expenditure and income data, the poverty is decomposed into six components: population shift (PS), within-region redistribution (WR), between-region redistribution (BR), nominal growth (NG), inflation (IF), and methodological change (MC). The results show that population shift (PS), within-region redistribution (WR) and inflation components explain the highest portion of the poverty changes in the urban and rural areas. Based on the results, the pro-poor growth policies and immigration-reducing policies are recommended for reducing rural poverty, while the growth-oriented policies with redistribution are recommended for decreasing urban areas. In all periods, inflation is the main poverty-increasing factor in both urban and rural areas; therefore, controlling inflation can reduce poverty rates.