Direct distribution of rents and the resource curse in Iran: A micro-econometric analysis

Resource-rich economies and ethnically divided societies are linked to higher income inequality at the macro level. Our goal is to empirically examine the income inequality and welfare effects of the direct distribution of resource rents and subsequent taxation in Iran. We use rich micro survey data covering 140,000 individuals from more than 36,000 Iranian urban and rural households in 2009. Our micro-simulations show that the direct distribution of resource rents among all citizens and the imposition of an additional direct income tax have a significant negative effect on the household GINI index and on poverty. We also examine three alternative policies to the resource dividend (RD) policy. The results indicate that the RD policy is the most successful policy for addressing rents-induced inequality in Iran compared with the alternative policies.