Unconditional nation-wide Cash transfer programme, Iran

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Unconditional nation-wide Cash transfer programme, Iran

How many people benefit: currently about 90% of Iranian population, > 72 Million

How can a programme that benefits 90% of the population (and the environment) be unpopular?

Interview with economist Djavad Salehi-Isfahani, research fellow @ Economic Research Forum

An unconditional cash transfer programme was started in Iran in 2010 – how did that come about?

Before 2010 Iran had a system of subsidies for energy and bread: Everybody paid less for bread, water, electricity, heating and fuel than they cost. The idea of the  Islamic revolution in Iran was to provide better lives to the poor and for 40 years the main belief was that subsidies for basic needs like water, electricity, fuel and bread would be a good way to deliver on that promise.

This was changed into cash transfers under president Ahmadinejad, because  his government believed that:

  • energy subsidies always benefit the wealthier part of the population more than the poor
  • energy subsidies encourage more fuel-consumption, the use of non-efficient appliances, waste of resources and are therefore not environmentally friendly

So in December of 2010 the Iranian Cash Transfer Programme was started, paying out the same monthly amount to everyone.

How much?

29% of the median household income, which at the time was about $1.50 per person day (in PPP[1] dollars).

Sufficiency:

Iran experienced high inflations after energy prices were raised, reaching 35% in 2013.  Currently inflation is much lower at 10% but because cash transfers were not inflation indexed, they are unfortunately losing their value. The amount is not sufficient on its own to live on.

Individuality:

The household head receives the transfer monthly, which is calculated as 455000 rials x household size. So while each person receives the same amount, the payments are made to the household head, making the household members dependent on the person receiving the money.

Universally?

Everyone with an identity card, though now people are being dropped for living abroad or being rich.

At the start, the government tried to “find the poor” through household survey questionnaires, but soon discovered that means-testing didn’t work. So they decided to roll out the scheme universally, as they had done with the subsidies.

Following a law passed by the Parliament, Iran’s current president Hassan Rouhani has started to exclude people, who appear too rich to be entitled to it, for example by checking into their ownership of homes and cars, and even their bank accounts.

I prefer a system without means-testing.  Means-testing has a negative incentive effect on work- not because the poor are lazy, but because taking away their cash transfer as soon as they start working is like a 100% income tax. This is the so-called cliff effect.

That brings us to the question of unconditionality.

The cash transfers were given to everyone in Iran who signed up to the scheme, which was almost 100% of the population. Until the scheme changed when Rouhani became president in 2013. Now there are currently about 10% excluded from the programme.

The main thing is – people don’t lose their cash transfer if they work or if they don’t work, there no such conditions attached to the receiving the transfer.

So HOW can a programme that benefits 90% of the population (and the environment) be unpopular?

It’s not unpopular amongst the lower income people. But there is an avalanche of opinions against the cash transfers within the conservative media, academics and the government. One of their arguments is that people don’t work if they get free money.  Many people oppose the scheme because they do not like its architect— former president Ahmadinejad.

This is one of the main arguments against basic income globally – also common in Iran?

Yes. There is an age old conservative, right-wing belief that people are lazy and that they have to be hungry to be motivated to work.

You have actually researched[2] scientifically if that is true?

Yes, I conducted a study, with Mohammad Mostafavi-Dehzooei, how the cash transfers impacted people’s readiness to work between 2011 and now. We found no evidence that cash transfers reduced labor supply (With the exception of young people still in education). Some workers even worked more hours after receiving the unconditional income!
This has something to do with the source of revenue the cash transfers get funded from: The disbanded subsidies on energy, so – in effect: a fuel tax.People don’t get taxed more on their income – which is usually the main channel for negative labor supply effects.  There is little or no evidence in the economics literature that cash transfers have a negative impact on willingness to work.  Yes, in theory if you do to need income to live, you may decide not work, but empirically this is not true for the vast majority of the people.

You have basically conducted the largest research about Basic Income & willingness to work to date – in a country where over 70 million people receive it.
This programme is larger than all known pilot projects together. Why isn’t this major news in every country discussing basic income?

We’ve had some interest since our study was published in May. Maybe International Basic Income Week can help spread the word?

Income tax provides a disincentive to work. In Iran we did not fins any disincentive to work, there is a disincentive against pollution: driving, using ineffective appliances, wasting resources.

I believe that further energy price increases, or even a fuel tax, should be used to save the cash transfer scheme, but the current government doesn’t want to do that, fearing inflation, even though replacing energy subsidies with cash transfers is a win-win.

The possibility for pilot projects is discussed in many other countries. What could these countries learn from the Iranian cash transfers?

Transferring the cash is very similar to unconditional basic income, though the revenue source is very different. The Iranian Cash Transfer Programme could be the UBI model for all oil-rich countries, that can avoid the negative effect of raising the funds through income taxation.

 Criteria met:

  1. Universality – yes, almost the whole population!
  2. Individuality – yes and no
  3. Unconditionality – yes
  4. Sufficiency – no

Notes:

Further reading:

 

 

Djavad Salehi-Isfahani was interviewed by Manja Taylor on 18th Sep

 

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