The Effect of Macroeconomic Policies on Poverty in Iran

Abstract

The objective of this study is to analysis the effectiveness of government intervention on poverty groups using a general equilibrium model. The social accounting matrix of year 2002 was used to estimate the GE model. The results indicate that absolute poverty line for the urban and rural regions are 3.7 and 2.4 million Rials respectively. Also the result shows that the majority of Iranian households are living under the poverty line. Thus, it is expected that the average propensity to consume among the households is high but on the other hand the average propensity to save is low.Keywords: Iran, intervention, Poverty line, household, general equilibrium 1. Introduction One of the main objectives of the government economic development programs in each country is to improve the economics conditions of people and reduce the poverty of the society. A structural change is required to be applied to reduce the poverty situation of the society. This could be done by an economic and social solution of poverty decreasing policy. Some economists believe that poverty is as a result of some economic -social factors. So it is necessary to try to find the main elements of poverty. A short term solution is a direct or indirect payment to the consumers. Subsidy on basic goods can be considered as a short -term support policy. But the long term aim is that the government has to protect the poverty groups by providing a necessary revenue acquisition condition. The creation of economic chances for poor people in order to combat with poverty is another long term solution. But the current government intervention policy doesn't provide any desirable chances for the poverty groups. In this study an attempt was made to use a general equilibrium model to analyze the effectiveness of government intervention policy regarding to the poverty issues. Literature ReviewMost of the previous studies have worked on only one of the components of government expenditure as a factor affecting on the poverty. Cane (2000) in Indonesia investigated the expenses of the road construction on the poverty. In this study they tried to separate the different states with suitable and unsuitable road. The results showed that one percent increase in the investment causes a 0.3 percent decrease in poverty in a 5 years period. Balsa Cane and Purina's study (2002) in Philippines showed that one percent increase in accessing to the road with instructive facilities decreases the income of poor people by 0.32 percent. Van D wall's study (1998) in Vietnam showed that the expanding of the irrigation facilities to the poor households who had small land increases the poor households' income more than the rich households. Fane and Junk findings (2002) showed that a 10 percent increase in investment on irrigation projects causes a 1.13 percent decreases in poverty index. Fane (2003) in his study showed that among the different components of government expenditure in rural sector, investment in research and extension, irrigation, rural instruction and infrastructu...

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