Comparing the Effects of Inflation on the Expenditure and Income of Urban and Rural Families in Iran

After the beginning of a new round of sanctions against Iran in 2010-2011, many disorders were introduced in the Iranian economy including increased inflation and reduced purchasing power. It has significantly affected on the welfare of families and, hence. The study objective is to compare the effects of inflation on the costs of the social welfare and income among rural and urban families.

The study adopts a descriptive-analytical methodology and urban and rural families in 31 provinces of Iran constitute its units of analysis. The data was comprised of family expenditure on food and non-food items in urban and rural areas during the period of 2011-2017 (at the height of sanctions) together with inflation. The panel data was analyzed using STATA 15 software package.

The findings showed that inflation has increased income and, as a result, has increased costs and that a one percent increase in inflation has increased non-food costs as much as 0.43 and 0.35 and food costs as much as 0.18 and 0.22 for rural families. Similarly, by a one percent increase in inflation in urban areas of Iran, families’ non-food costs have increased by 0.20 and 0.16 and their food costs have increased by 0.11 and 0.24.Overall, inflation has led to a lower increase in the expenditure of rural families, so that a one percent increase in inflation has increased the costs for urban families as much as 0.32 and for rural families as much as 0.15. Therefore, the inflation caused by sanctions has increased the gap between urban and rural area and, as a result, increased macroeconomic instability. Considering the mutual effect of income distribution, unemployment, inflation and cost on each other, the policy of adjustment of income distribution and tax on income and wealth should be implemented in an exponential manner to reduce inequality. Also, in the face of inequality, in the early stages of development, politicians can control or reduce the upward trend in poverty and inequality by using the tools of transfer payments, social security insurances, unemployment insurances, etc.

The results of this research can help organizations in charge of dealing with the effects of inflation in urban and rural areas to have a deeper insight into the existing conditions so that they can reduce the negative effects of inflation on life by using the solutions provided.