Document Type : Research/Original/Regular Article
Subjects
Extended abstract
Introduction
Over the past decade, Iran's monetary and fiscal policies have played a significant role in determining social welfare indicators. This article aims to analyze the impacts of these policies by examining trends in variables such as inflation, poverty, income inequality, and purchasing power from 2013 to 2023. The significance of this topic stems from the emphasis placed on social welfare improvement in Iran’s Macro-Level Policy Frameworks, such as the Constitution and the Development Vision Document. For instance, Article 29 of the Constitution refers to the right to social security for all individuals, while Article 43 emphasizes meeting basic needs such as housing, food, and education. However, the analysis reveals that over the past decade, the inflation rate has risen from approximately 8% in 2017 to over 45% in 2023. This upward trend has led to reduced purchasing power, increased poverty rates, and deepened income inequality. The percentage of households below the absolute poverty line rose from 19.4% in 2011 to 30% in 2021, with the poor population exceeding 25.6 million people. These conditions have resulted in social unrest and instability, contributing to diminished social capital.
The literature on welfare began with the works of Alfred Marshall and Arthur Pigou. Marshall highlighted the importance of resource and wealth distribution for welfare improvement, while Pigou introduced concepts such as "external costs," emphasizing the government's role in addressing market failures to enhance welfare. Modern theories expanded through the works of Hicks and Samuelson, which examined the effects of economic policies (monetary and fiscal) on welfare. Studies in this field have shown that monetary policy can affect welfare in the short term by reducing unemployment and inflation, but these effects are temporary. Expansionary policies create inflation and reduce welfare, whereas contractionary policies may improve the conditions of the poor in the long term by reducing inflation. Mechanisms such as substitution effects, Fisher effects, and wealth and labor income dynamics play a role in income distribution. Over the long term, monetary policies aimed at reducing inflation and economic volatility contribute to sustainable welfare improvements. Additionally, fiscal policies enhance welfare through income redistribution, public goods provision, infrastructure investment, and improvements in health and education. Progressive taxation and the reform of indirect taxes can reduce income inequality. Government expenditures in areas such as healthcare, education, and human development positively impact welfare indicators. Environmental policies, such as carbon taxes, also play a key role in enhancing long-term welfare.
Research on welfare in Iran indicates that, in addition to sanctions and economic shocks, mismanagement and ineffective monetary and fiscal policies have significantly contributed to the deterioration of public welfare. Statistical analyses and linear regression models confirm this, revealing the following:
Inflation, as one of the main outcomes of monetary and fiscal policies, has profoundly impacted social welfare. From 2013 to 2023, the Consumer Price Index (CPI) increased by over 570%. This sharp rise has escalated costs for food, healthcare, and education, pushing many households below the poverty line. For instance, household healthcare costs increased by approximately 400% during this period. Meanwhile, real wages have consistently declined since 2018, with workers' purchasing power dropping by over 45%. This situation has left households unable to meet their basic needs.
A key monetary-fiscal policy during this period was the elimination of preferential currency exchange rates. Implemented to reduce fiscal pressure on the government, this policy led to unprecedented increases in the prices of essential goods. Statistics show that within the first four months of its implementation, inflation in the food category exceeded 45%. Moreover, this inflation disproportionately affected lower-income groups, forcing poor households to allocate a larger share of their income to essential expenses, while government support payments failed to compensate for these pressures. For example, in 2023, these payments covered only 1% of urban households' monthly expenses.
A linear relationship between inflation (as the result of ineffective monetary and fiscal policies) and the Gini coefficient indicates that a 10% increase in inflation results in a 7% rise in the Gini coefficient. This implies that inflation, acting as a hidden tax, places the greatest burden on low-income groups and exacerbates income inequality. Instead of promoting fairer income distribution, economic policies have increased wealth concentration among higher-income groups.
Over the past decade, the absolute poverty rate has steadily risen. In 2011, the absolute poverty rate stood at 19.4%, increasing to over 30% in 2021. Additionally, the depth of poverty has worsened. Support payments, a primary tool of the government to reduce poverty, have had limited impact. At best, these payments covered only 30% of rural households' living expenses in 2017, a figure that dropped to less than 2% by 2023.
The misery index, which combines inflation and unemployment rates, has followed an upward trend over the past decade. This index, reflecting the severity of economic and social conditions, has continuously risen, resulting in declining quality of life and increased social dissatisfaction.
The findings of this article reveal that, over the past decade, economic policies have exacerbated poverty, inequality, and reduced quality of life, instead of improving social welfare. To reverse this trend, it is essential for monetary and fiscal policies to be designed and implemented in a coordinated and targeted manner. Key recommendations include controlling inflation through budget deficit reduction, reforming support policies, and improving subsidy structures. Strengthening social policies, such as enhancing access to healthcare and education services, can positively impact poverty reduction and social welfare enhancement. Additionally, fiscal decentralization, by increasing accountability and local competition, can bolster social welfare.
