Investigating the Asymmetric Effects of Financial Development on Income Inequality in Iran: Using Nonlinear Auto-Regressive Distributed Lag (NARDL) Approach

Abstract

The relationship between financial development and income inequality is one of the topics that has been the focus of researchers and economic policymakers since the 1990s; hence extensive empirical studies attempt to determine the type of effect of financial development on income inequality in the world. In Iran, in recent decades, studies have been conducted to investigate the effects of financial development on income inequality within the framework of the inverted U hypothesis and linear relationships between these indicators. In the present study, the asymmetric and non-linear effects of financial development on income inequality for the period 2013-2016 have been investigated. The current research method is organized in the category of applied research, and for this purpose, the NARDL model has been used; the use of this approach is the distinguishing feature of the present study compared to other studies conducted in Iran. The results show that financial development has a negative relationship with income inequality in Iran, and this relationship is consistent with the inequality reduction hypothesis. Also, the existence of long-term asymmetric effects has been confirmed in the model, so increasing and decreasing the financial development of income inequality in the long term bears different statistical effects.

Keywords

• investigating the asymmetric effects of financial development on income inequality in iran: using nonlinear auto-regressive distributed lag (nardl) approach