Income Inequality in IRAN: 1984-2006

This article focuses on income distribution and inequality changes in Iran from 1984 till 2006. To this end it calculates five inequality indices across rural and urban areas within the period of the study. Using Household Expenditure Survey conducted by Statistical Center of Iran, income distribution and inequality changes for urban and rural areas in Iran within time span 1984 to 2006 are calculated. To this end, Gini Coefficient, Relative Mean Deviation, Coefficient of Variation, Theil's Index and Atkinson's Measure are calculated and the results of the inequality indices are compared. In this study household expenditure is used as a close proxy of household's income and well-being. In spite of the fluctuations of the inequality measures in the period of the study, the general trend of inequality has been declining. Nevertheless, in the first two years of the fourth social and economic planning, i.e., 2005 and 2006, inequality has been increasing. Comparing inequality figures calculated by the five different measures show that there is a general consistency among the measures while the figures calculated by the Coefficient of Variation show less consistency with the other indices. Atkinson's measure has been calculated with different values of the inequality aversion parameter. The results show that while the parameter assumes values between 0.25 and 0.5, Atkinson's measure is more consistent with other inequality measures. It seems that Gini coefficient, Theil's index and Atkinson's measure show strong consistency and policy makers can use either of them for economy and simplicity. Nevertheless, Gini coefficient is easier to understand and more popular. Gini coefficient has been declined from 0.411 in 1984 to 0.401 in 2006 for urban areas and increased from 0.397 in 1984 to 0.4 in 2006. Theil's index indicates a sharp decline from 0.392 in 1991 to 0.261 in 1992 in urban areas and relatively strong decline from 0.37 in 1991 to 0.248 in 2003 for rural areas. Once Atkinson's measure is calculated for the inequality aversion parameter 0.5 the highest figure is 0.157 in 1990 and the lowest one is 0.118 in 1993 for urban areas. The same measure shows mild decrease of inequality from0.159 in 1991 to 0.115 in 2002 for rural areas. Consumption share of the highest deciles has been declined from 29.3 percent in 1984 to 29.61 percent in 2006 in urban areas, which is a negligible change. In the same period of study similar figures for the lowest deciles has been increased from 2.1 percent to 2.67 percent which is also a negligible achievement. For the urban areas the share of consumption has been increased from 29.24 percent in the beginning of the period to 29.65 percent, and the lowest deciles figures from 2.33 percent to 2.62 percent. In overall, for policy measures in fran, it is recommended that Gini coefficient, for its simplicity and easy understanding by the public, Theil's index and Atkinson's measure with the inequality aversion value 0.5 be used for the policy making.