# **1. Introduction**

Accurate and timely welfare measurement is a necessary step for effective and informed policy making. Even though there are no official publicly available poverty estimates in the Islamic Republic of Iran, estimates of poverty trends exist in the academic literature. These are calculated either based on the authors’ own assessment of an appropriate national line or according to international poverty lines based on US dollars. Examples of such estimates cover different periods between 1984 and 2009 and are available in Assadzadeh and Paul (2004), Salehi-Isfahani (2009), Mahmoudi (2011), and Maasoumi and Mahmoudi (2013).

According to Salehi-Isfahani (2009), the 1979 Revolution and the subsequent war disrupted economic growth, which contributed to a deterioration of welfare for Iranian households. Using the poverty lines defined in Assadzadeh and Paul (2004),<sup>3</sup> Salehi-Isfahani shows that poverty increased dramatically following the revolution from 29 percent in 1984 to 42 percent in 1989. After the end of the war in 1988, the period of reconstruction and reforms started. The poverty rate fell by more than 30 percentage points, declining from 42 percent in 1989 to 12 percent in 2005. Poverty gap and severity indicators improved as well which may suggest that welfare improved for the population close to the poverty line, but also for those at the bottom of the distribution (Salehi-Isfahani 2009).

The World Bank (2008) analyzed regional dimensions of poverty in the Islamic Republic of Iran in 19982005 using both the international poverty line ($2.9 in 2005 PPPs) and poverty lines in local currency units. Regardless of the choice of poverty line, poverty fell both in urban and rural areas and in most of the provinces. According to Maasoumi and Mahmoudi (2013), who decomposed poverty changes during the period 2000 to 2009 into growth and redistribution components, poverty declined between 2000 and 2004 and increased afterwards both in rural and urban areas. This is in line with findings in Mahmoudi (2011) who also reported an increase in poverty between 2004 and 2007.

There is, however, little knowledge about poverty trends in the Islamic Republic of Iran in the recent past, in particular after 2008, when the country’s economy entered a turbulent period as a result of energy price reform, the tightening of international sanctions, and falling oil prices. The most recent international poverty estimates reported by the World Bank and based on the group data from the Household Expenditures and Income Survey (HEIS) contain only two data points, for 2009 and 2013.<sup>4</sup> According to this source, poverty fell between 2009 and 2013 regardless of the choice of poverty line. Inequality, measured by the Gini coefficient and based on expenditure per capita, also declined, from 42 to 37.4 percent. This limited empirical evidence should be treated with utmost caution because it is based on two points in time and could mask volatility in poverty rates especially given the shocks the Islamic Republic of Iran has experienced during this time. In particular, during this period the Islamic Republic of Iran went through sanctions, removal of energy subsidies and initiated the distribution of universal benefits through cash transfers. Therefore, constructing a consistent and reliable poverty trend by including all years is essential to better understand welfare changes in the Islamic Republic of Iran after 2008.

This working paper fills the existing knowledge gap by constructing welfare aggregates and measuring poverty rates in the Islamic Republic of Iran using publicly available data from the Household Expenditure

> 3 In particular, the rural daily poverty line in 2004 was set at 7,679 rials and the urban one at 10,886 rials.

> 4 Datt (1998) discusses how group data can be used to calculate poverty rates.

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