Economic Sanctions and Consumption Inequality in Iran

Document Type : Research Paper

Authors

1 Department of Economics, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran.

2 Department of Agricultural Economics, University of Zabol, Zabol, Iran.

Abstract

Economic sanctions impose high costs on the national economy of the sanctioned countries. However, through punished countries, sanctions costs are not evenly distributed among all domestic economic agents. Although the distributional effects of sanctions have been subject of some research, much of the debates on the impacts of sanctions on inequality have mainly focused on income. However, for economists, the distinction between income and consumption could make a significant difference, especially if changes in incomes did not fully transmit to consumption. Our study contributes to this strand of literature by exploiting the concept of “consumption inequality” and empirically examining it in a sanctioned economy. To this end, we constructed a two-step approach of the Factor Augmented Vector Autoregressive Model by developing an index composed of many economic variables to capture the effects of sanctions on the Iranian economy from 1985 to 2019. Our findings indicate that there are time spans during which sanctions have imposed more impacts on the economy. They also display that the effects of sanctions on the Iranian economy were followed by increases in economic inequality, but the consumption inequality increased more relentlessly. Furthermore, income inequality and consumption inequality respond differently to shocks, which emphasizes the importance of the distinction between inequality indices. Our findings indicate that consumption inequality responds to economic shocks and that economic sanctions have significant and continuous effects on consumption inequality in Iranian society.

Keywords

Main Subjects

Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 20 September 2023

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