Evaluating the effect of macroeconomic variables on the welfare changes in Iran

Purpose The purpose of this paper is to examine the level of cardinal welfare based on Sen’s index using both Pareto and non-Pareto states besides evaluating the effective factors on the welfare changes according to a fuzzy least-squares regression model. Design/methodology/approach The social welfare functions express the optimal social allocations in the public economics. Therefore, they can be applied as a tool to represent the difference of utility allocations among consumers. There are various criteria on the literature pertaining to the social welfare functions such as those of Dasgupta et al. (1970), Sheshinski (1972), Sen (1974), Yitzhaki (1979), Shorrocks (1983), Kakwani (1984), Dagum (1990, 1993), Mukhopadhaya (2003), and Mukhopadhaya and Rao (2001). The Sen’s welfare function because of strong theoretical basis and enjoying the welfare axioms is more celebrated among others so that it is a function of individual utilities resulting from the individual’s social positions. Findings The findings indicate that the welfare level has increased by about 4.8 percent during the period 2002-2007; by nearly 3.1 percent during 1997-2001 and mature to 2.7 percent from 1992 to 1996 such that the period 1997-2007 has had the highest level of social welfare improvement in Iran. The results obtained from the fuzzy regression show that the unemployment rate, inflation rate and Gini coefficient variables have an adverse relation with the cardinal welfare in both Pareto and non-Pareto cases, while the literacy rate and government expenditures have a positive relation with the welfare index. The findings also imply that there is a positive relationship between economic growth and welfare level in Iran. Originality/value I verify that this manuscript is an original study.