Measuring the Impact of Economic Freedom on Income Inequality in Iran's Economy, Theoretical Analysis and Experimental Verification

Abstract

One of the most important challenges for policies concerning economic freedom is its inequalities effects. Mnay researches have examined the various channels and mechanisms in order to find the components of economic freedom which influences the distribution of income. Previous studies on the relation between economic freedom and income inequality have produced varied results. The paper examines this relationship for two groups of countries based on high (18 country) and low (16 country) degrees of economic freedom. Using panel date during 2004-2018 with quintile regression, results showed that in both groups with different levels of economic freedom, increasing economic freedom at low and middle levels of income inequality, had improved income inequality, but increasing economic freedom in high levels of income inequality did not show any meaningful effect on income inequality. The implication of this research findings for Iran economy showed that when Gini index is lower than 41.4%, increasing economic freedom improves income inequality, while it is meaningless when Gini index is between 41.4 – 48.4%.

Keywords

• economic freedom
• income inequality
• income distribution
• capitalism
• institutionalism
• regression quantile