Cash transfers, subsidy reform, and inequality: evidence from Iran

This study evaluates the impact of Iran’s Targeted Subsidies Reform on income inequality between 2010 and 2019, drawing on Gini coefficient estimates and socio-economic predictors from the World Bank’s World Development Indicators, along with income and wealth distribution data from the World Income Inequality Database. Using the synthetic control method to construct a counterfactual trajectory of inequality in the absence of the reform, the analysis reveals a significant reduction in the Gini coefficient during the first three-year post-intervention, with a 16.6% gap compared to the estimated value had the intervention not occurred. This estimate reflects the reform’s potential distributional effect during an early period with limited external macroeconomic disruptions. Although subsequent economic turbulence substantially weakened these gains, inequality remained below the counterfactual in later years, indicating a persistent yet markedly reduced divergence. The findings suggest that replacing regressive energy subsidies with broad-based cash transfers can support more equitable outcomes, but they also indicate that the durability of such gains depends critically on intervention design, sustainable financing, and a macroeconomic environment that limits inflationary erosion of real transfer values.