Iran’s Gini Index Up 2.8%

EghtesadOnline: Iran’s Gini Index was at 0.4093 in the last fiscal year (March 2018-19), indicating that the gap between the rich and the poor increased by 0.0112 points or 2.8% compared with the year before (March 2017-18).

News ID: ۷۴۸۳۶۳

04 September 2019

Citing the findings of the Statistical Center of Iran, the Persian daily Donya-e-Eqtesad reported that the Gini Index for last year has been the highest since the fiscal 2010-11.

The Gini Coefficient ranks income inequality on a scale of zero—no inequality—to one, the maximum level of inequality. In other words, the closer the number is to one, the more wealth is concentrated in the hands of fewer people, thus the bigger income disparity.

Because of the way the scale is constructed, a modest-sounding difference in the Gini ratio implies a big difference in inequality, according to Financial Tribune.

The gap between Gini Index of urban and rural areas increased to 0.345 points last year from the preceding year's 0.234 point. Since the index remained more or less the same for rural areas, it is understood that changes in urban areas is responsible for the bigger gap.

The rise in expenses of urban and rural households was close to each other, at around 20.1%. However, income growth in urban households was 3% faster than that of rural households.

Revenues earned from durable items, including real estate and gold, might have been behind the rise in urban household income, particularly those who fall in high-income deciles.

The growth in food and tobacco expenses, according to the Plan and Budget Organization, is one of the major drivers of Gini Index. Gross food expenditure in urban areas last year jumped by 23% compared with the year before, around 4% more than non-food expenses.

The gap between increases in food and non-food expenditure was 0.8% for rural households. The average annual growth of food expenditure for rural households was close to 20%, which is 2.4% less than that of urban households.

In fact, the rise in food expenditure leads to more pressure on low-income families and deepens wealth disparity, as food plays a more significant role in the consumer basket of people of modest means.

Wealth Disparity

According to a research entitled “Poverty Reduction Policies and Improvement of Wealth Redistribution” by economist Mohammad Hosseini, wealth disparity is more visible in Iranians’ everyday lives today than it was a decade ago. Other findings of the study follow:

Ultra-rich Iranians, those who belong to the top income percentile, spend 86 times more than the poorest percentile.

The bottom 10% (the poorest decile of the population) spend 1-14th of the sum spent by the richest decile.

Iran’s Gini coefficient is nearly equal to that of the United States. [America’s Gini for disposable income is up by almost 30% since 1980, to 0.39.]

Wealth inequality in Iran can be blamed on low efficiency of public spending and revenues.

With oil revenues at their disposal, Iranian governments have failed to build an integrated, workable system capable of generating revenues from taxing the rich. Low tax rate or tax exemptions for some economic sectors, as well as high levels of tax evasion, pose significant hurdles in the way of taxation in Iran.

There are also serious faults in the expenditure of taxpayers’ money, which reinforce inequality. The welfare system cannot identify the target group of its services due to the lack of a comprehensive data collection method. Welfare programs in Iran include almost every member of the society and that virtually leaves inequality intact.

Take the example of the cash subsidy program. As part of the so-called Subsidy Reform Plan, the government of former president, Mahmoud Ahmadinejad, removed food and energy subsidies in 2010 and paid 455,000 rials ($4) to each and every Iranian on a monthly basis. The controversial plan has been retained by the current administration though a small number of subsidy receivers have been cut from the list.

To date, more than 90% of Iranians still receive the monthly grant of cash subsidies. An individual who belongs to high-income deciles receives the same amount as the poorest in the society.

The same inefficiency is noticeable in the country’s healthcare insurance system. More than 40% of Iranians in top high-income decile have free health coverage, whereas the coverage for first-from-the-bottom decile of income distribution stands at 84%.

The share of free pension insurance is higher for the top deciles. Sixteen percent of the top eighth, ninth and tenth deciles have free pension insurance against only 6% of the first decile.

At present, 2% of richest urban households (10th decile) receive aid from charity organizations compared with 17% of the low-income first decile.

One might cite these paradoxes as the reasons behind the 14-fold difference of expenditure between the first and 10th deciles in Iran, which suggests that the quality of life for the households belonging to the top decile is 14 times better than that of the first decile. This is while the ratio is less than seven for Germany, France, the Netherlands, Denmark, Norway and Sweden.