Welfare, poverty and income distribution
Bijan Baseri
Abstract
In this paper, attempts are made to empirically examine inequality in Iran which has hindered the government to achieve a balanced provincial socio-economic development. Income inequality affects economic growth sustainability through certain channels such as different saving rates of people, incentives ...
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In this paper, attempts are made to empirically examine inequality in Iran which has hindered the government to achieve a balanced provincial socio-economic development. Income inequality affects economic growth sustainability through certain channels such as different saving rates of people, incentives to work hard, political instability and other factors as a whole. The effectiveness of government policies to address a balanced and an equitable development needs of each province depends mainly on quality of existing institutions, individual participation and their capabilities to contribute to development effort in each province. Inequality in provinces is partly due to regional inequality which in turn stems from unequitable provincial privilege to some resources, production specializations, the degree of centralization and unequitable budget allocation. In addition, the orientation and expenditure allocations mechanism pursued by government, if not rightly targeted, may affect spatial planning and economic growth which ultimately brings about inequality. In the present study, we examine how government policies have contributed (if any) to achieve the balanced growth objectives in order to decrease the existing provincial inequality gap. Based on Theil’s and Williamsons indices, we estimated inequality coefficient in Iran’s provinces for the period of 2000 to 2019. The findings in this research show that the policy measures adopted by government in some provinces, have had mixed consequences. For some provinces it has contained and reduced the inequality and for some other province it has worsened the inequality gap over the same period. Based on Theil’s Index, inequality coefficient has increased in provinces such as Tehran and some other relatively more developed provinces and for less developed provinces the index has decreased. Government budget expenditures disbursed among various provinces have had a bearing on inequality through the provision of public physical investment, promoting education provision, expanding health care services and capacity building enhancement. Introduction Income inequality affects economic growth performance and create disparities among regions in a country. The income inequality gap among regions contribute to adverse outcomes resulting from economic growth. There are different arguments in this regard. One categories of views emphasize on negative aspects of income inequality and economic growth (Alesina and Rodrik (1994), Persson and Tabellini (1994)) Li and Zou (1998), Amos (1988), Barro (2000). The other one emphasizes on positive aspects of income inequality. The first view argues that income inequality encourages economic growth, because of effectiveness brought about by incentives, efforts made, skill level of individuals and household’s capabilities. It seems that part of inequality stems from regional disparities and non performing spatial policies. Spatial inequality is the result of economic and regional policy measures adopted by government. Some contributing factors to inequality originate in leading economic sectors, and some other factor have roots in government policies and in growth leading provinces. From theoretical point of view, income inequality stems from political instability and income distribution channel affected by higher progressive income tax rates in order to finance regional equalization needs.(Alesina and Rodrik, 1994,Galor,2006). It’s obvious that regions undergoing economic development process with a time lag, will benefit from the policy experienced by others. Kuznets (1955) determined the mutual relation between inequality and economic growth in inverted U shape in the state of economic development and Williamson (1965) Generalized it to regions. Barrios and Strobl (2009), Lessmann (2014), Lessmann and Seidel (2017), Neves (2016) concludes that in the higher phase of economic development the Kuznets inverted U curve will take N shape.The effect of income inequality on economic growth is different due to the level of economic development, government policies, and region’s capabilities. Methods and Material Regional Inequality is estimated by different methods. Williamson (1955) and Theil’s (1965) indices selected to estimate regional income inequalities in Iran’s provinces based on following relationship: In which, CVw is Williamson index and its quantity takes a range between 0 and ∞. yi is province per capita income. is national average per capita income. pi is province population and p is total population. Williamsons index measures inequalities using population shares of each province. we used the models for two specific periods,2000 and 2019. Data gathered from SCI (Statistical center of Iran) and regional statistics.The Theil’s indices have been estimated by following equations (Cowell,2009): in which, n is number of provinces , xi is province per capita income, stands for national per capita, is province income share, log shows variables in logarithm form. Computation is made using current prices. Share of each province in total government expenditure is taken as an indicator of resources allocation mechanism in order to estimate inequality and changes their in. Results and Discussion The result, based on Theil’s indices is shown in table below:Theil’s Inequality indices calculated for Iran, in2000 and 2019ProvincesProvince-wise disbursement of Government ExpenditurechangesTheils Indices in :20002019Arak1.82-0.2440.0480.036Gilan3.56-0.4350.0520.029Mazandaran4.22-0.0210.0380.037East Azarbyjan4.810.3130.0390.051west Azarbyjan3.670.1670.0320.037Kermanshah3.19-0.2330.0330.026Khuzestan6.99-0.3970.1250.076Fars7.26-0.2420.0740.056Kerman4.590.0820.0520.056Khorasan Razavi8.16-0.4240.1040.060Isfahan5.42-0.2400.0940.071Hormozgan3.04-0.2060.0590.047Sistan and Baluchistan4.07-0.2240.0330.026Kurdistan2.54-0.0610.0200.018Hamadan2.660.0780.0220.023Lorestan2.630.0650.0200.021Ilam1.47-0.2630.0160.012Zanjan1.790.0960.0240.026Chaharmahal and Bakhteyari1.79-0.0220.0150.015 Theil’s Inequality indices calculated for Iran, in2000 and 2019ProvincesProvince-wise disbursement of Government ExpenditurechangesTheils Indices in :20002019Kohgiluyeh and Boyerahmad1.47-0.0650.0130.012Semnan1.48-0.3790.0270.017Yazd1.95-0.0800.0390.036Bushehr2.13-0.3170.0620.042Tehran6.680.6410.0970.160Ardabil1.88-0.0110.0200.019Qom1.80-0.3610.0210.014Qazvin1.71-0.4820.0540.028Golestan2.350.0330.0200.020Khorasan shomali1.572.3680.0030.011Khorasan Jonobi1.661.0240.0060.013Alborz1.650.1720.0340.039Total100-0.1241.2961.135Reference: Author’s calculation Based on our findings, the inequality between two periods under study (2000 - 2019) has decreased from 1.296 to 1.136. In some province Theil’s coefficient of inequality has increased (e.g., East Azarbyjan, west Azarbyjan, Kerman, Hamadan, Lorestan, Zanjan, Tehran, Golestan, Khorasan Shomali and Khorasan Jonobi). Tehran has experienced minimum inequality changes between two periods. But Qazvin, Gilan and Khorasan Razavi have experienced maximum changes in inequality index over the same period compared to other provinces Conclusion In Iran, Government regional resource allocation through budget provisions has affected provinces differently in terms of inequality over the specified period. Each current and capital government expenditure allocated to provinces, has affected them differently due to privilege bargaining power enjoyed by some provinces and other relevant issues involved. Endogenous factors such as local and regional investment, local incentives, entrepreneurship, stability and managerial capacities as complementary elements have played an important role in decreasing regional inequality.
