How the Study Is Conducted

net consumers of food items and are likely to be negatively affected by price changes (Barrett and Dorosh 1996; de Janvry and Sadoulet 2010).

Moreover, it is relevant for policy makers to analyze the short-run impacts, especially of large shocks. The COVID-19 pandemic and inflation shocks occurred in the context of a preexisting prolonged crisis in the Islamic Republic of Iran, and thus the ability of households to adjust or use coping mechanisms was already constrained. Even short-lived shocks can compromise dietary diversity and nutrition intake (Skoufias, Tiwari, and Zaman 2012), for instance, by pushing households into hardto-escape poverty traps. Also, the use of coping strategies in the short run might be less than fully effective and bring later negative consequences (Paxson and Alderman 1992), for instance, if households accumulate debt or deplete their savings.

How the Study Is Conducted

Data

Data come from the 2018/19 Iranian Household Expenditures and Income Survey (HEIS), an annual nationally representative survey collected by the Statistical Center of Iran (SCI). HEIS is stratified by province and by urban and rural areas. It contains detailed information of a household’s sources of labor and nonlabor income, as well as consumption across a range of goods and services. Additionally, consumption shares derived from the 2016/17 HEIS are used to build price indexes. The structure and content of both survey rounds is similar.

The SCI collects official price data to construct the CPI. Prices are reported for the 31 provinces and 12 large categories of goods and services, which are matched to those in HEIS.3 Prices are also available for 10 subcategories of food expenditures and three subcategories of housing expenditures.4 SCI reports CPI for deciles and provinces. By contrast, the group-specific indexes constructed in our study are further disaggregated for intersections of those groups (for example, rural areas in a specific province), allowing a more detailed analysis. Further, they are adapted to the welfare aggregate used for the poverty measurement, excluding durable items and health expenditures.

The poverty measurement follows well-established international standards, which requires defining an indicator to measure welfare or living standards. This study uses both household consumption and household income (expressed per person), in line with standard procedures, to construct the aggregates and implement price adjustments to ensure comparability within and across survey years (see Deaton and Zaidi 2002;

Haughton and Khandker 2009). The consumption aggregate excludes expenditure on health and durable goods and is intertemporally and spatially deflated to account for changes in prices during the survey period and for spatial variations in prices.5 In the absence of an official national poverty line, the poverty threshold—the minimum level below which a person is considered to be poor—is the international upper-middle-class poverty line of US$5.50 expressed in 2011 purchasing power parity (PPP) terms for household final consumption expenditures (Jolliffe and Prydz 2016).6 PPP rates correspond to the May 2020 CPI revision.7

Microsimulation Analysis

In the context of the global pandemic, where health concerns and mobility restrictions may limit traditional data collection by national statistical offices, microsimulations are a useful tool to understand how the shocks are affecting people’s welfare. In the Islamic Republic of Iran, where high-frequency phone data are not being collected, this work helps to shed light on the impacts of COVID-19 on households in the country. The analysis is based on the simulation of scenarios in which various sources of household income are reduced, depending on the degree of the pandemic’s impact. It is a partial-equilibrium assessment that captures the first-order effects of the shock on various sources of household income. The COVID-19 pandemic can affect welfare through changes in labor and nonlabor incomes (such as remittances and transfers), consumption changes stemming from cost-of-living increases, higher health care and other expenses, and service disruptions (particularly to health and education).

This chapter focuses on the short-term impacts of the shock and assesses changes to monetary welfare. As such, it omits possible longterm impacts on household welfare that arise from human capital shocks and service disruptions. Further, monetary impacts occur primarily through labor and some sources of nonlabor income. Although the analysis emphasizes the impacts generated by price changes, it omits other changes in consumption patterns (such as those potentially derived from higher health care costs).

Labor incomes may suffer as a result of work restrictions or loss of earnings and working hours associated with lower aggregate demand, direct illness, household caring needs, quarantines, or social distancing behaviors. The impacts are likely to be starker in certain sectors—such as construction; retail; transport; hotels and restaurants; communications; real estate; administrative and support activities; and entertainment and art. Within sectors, individuals who are self-employed are more vulnerable to layoffs or income reductions than those with a salary.