<http://www.brookings.edu/opinions/2008/0805_iran_salehi_isfahani.aspx>
This brings us to the finding of the CBI study that captures the political imagination, namely that poverty had increased, from 18 to 19 percent, between the first and second year of President Ahmadinejad’s administration. To show that poverty actually rose during Ahmadinejad’s first two years would be quite a damning statement for a president who promised to be more pro-poor than his predecessor, Mr. Khatami.[3] Unlucky for Mr. Ahmadinejad, the Khatami years set the bar for poverty reduction quite high: according to the $2 per day standard, nationally the poverty rate declined under his watch from 19.5% in 1997 to 6.4% in 2004.[4] Nor is the poverty outlook for the remainder of Mr. Ahmadinejad's term likely to be any more favorable. Most people believe that rising inflation in 2007-08 has worsened the position of the poor. We will know that for sure only when new data become available.
Lucky for Mr. Ahmadinejad, there are good reasons to doubt that poverty has been on the rise. The calorie method employed in the CBI study is highly unreliable for comparison over time because of the rough way in which the basket of goods that fulfills the minimum calorie requirement is calculated each year. Another comparison, based on the absolute poverty lines defined on the basis of the $2 per day standard, shows the opposite: that poverty rates have declined slightly during 2005-06, as was just noted. Furthermore, inflation in 2007-08 may have done more harm to those on fixed incomes (salaried workers and the retired) who generally populate the higher deciles of the distribution. Poverty rates may yet not show the increase in the coming years that Mr. Ahmadinejad’s detractors seem to expect. Many families around the poverty threshold work in markets, such as in construction, where wages are competitively set and therefore more able to keep up with inflation, or they produce the very goods—such as fresh vegetables for the Tehran market—that have risen in price most spectacularly.
Comparing relative poverty rates over time is not very informative because they depend on the distribution of income, but they do point to something else that may have gone wrong with Mr. Ahmadinejad’s promises. My calculations for half-the-mean poverty line show an increase in the proportion of individuals in poverty, from 32.0% in 2005 to 33.9% in 2006, and for half-the-median from 17.4% to 18.7%.[5] These are not signs of increasing poverty but of a deteriorating distribution of income, which is where Mr. Ahmadinejad is most vulnerable, because his slogans have been more about economic justice than poverty reduction. According to the Household Expenditure and Income Survey data for 2005 and 2006, the distribution of income actually worsened in the first two years of his presidency.[6]
Lifting 350,000 Iranians above the $2 per day poverty line as revealed by survey data is not what one would call a policy failure, but it is hardly impressive given the increase in the inflow of oil revenues in 2006 and the resulting expansion of the economy. As Table 1 shows, economic growth during 2005-06 did lift all incomes, even those of the lowest deciles (which is why we see absolute poverty rates fall), but it was four times as lucrative for the rich as it was for the poor. The worsening of the distribution of expenditures in 2006 compared to 2005 is also reflected in the Gini coefficient of inequality, which increased from 43.5 in 2005 to 44.5 in 2006. This is not a surprising finding for anyone who has studied how Iran’s distribution of income changes following the inflow of oil money—most of the time it gets worse. Apparently, Ahmadinejad’s populist policies have so far not affected the iron law of Iran’s trickle-down economics.