08.09.2025 New Publication: International Sanctions and the Shrinking of Iran’s Middle Class

A new article by Mohammad Reza Farzanegan (Economics of the Middle East Research Group, CNMS/School of Business & Economics, Philipps-Universität Marburg) and Nader Habibi (Brandeis University) has just been published in the European Journal of Political Economy.

The study, titled “The Effect of International Sanctions on the Size of the Middle Class in Iran”, investigates how economic sanctions imposed on Iran since 2012 have affected the development of the Iranian middle class.

Using the Synthetic Control Method (SCM) and Synthetic Difference-in-Differences (SDID), the authors construct a counterfactual scenario of how Iran’s middle class might have evolved in the absence of sanctions. Their results show that sanctions led to a 17 percentage point average annual reduction in the size of the Iranian middle class between 2012 and 2019, with SDID confirming a still substantial 12 percentage point loss.

The study also highlights the economic transmission channels through which sanctions erode middle-class stability—declining GDP per capita, reduced trade, weakened investment, and growth in informal and vulnerable employment. These findings underline how sanctions not only harm macroeconomic indicators but also reshape the social structure of Iranian society by shrinking its middle-income groups.

This research contributes to debates on the social consequences of international sanctions, emphasizing that their costs extend beyond state institutions to broader societal groups, with long-term implications for socio-economic stability.

The article is available open access here: https://doi.org/10.1016/j.ejpoleco.2025.102749

Farzanegan, M. R., & Habibi, N. (2025). The effect of international sanctions on the size of the middle class in Iran. European Journal of Political Economy, 90, 102749. https://doi.org/10.1016/j.ejpoleco.2025.102749