Journal of Economics and Modelling

Journal of Economics and Modelling

The Effect of Inflation on Income Inequality in the Iranian Economy: Structural Time Series Approach

Document Type : Original Article

Authors
Meisam Haddad Haddad 1
Mehdi Zahedgharavi 2
1 PhD in Economic, Economic Accounts Department in Statistics Center of Iran, Tehran, Iran
2 Associate Professor of Economics, Faculty of Humanities, Ayatollah Boroujerdi University, Boroujerd, Iran
10.48308/jem.2025.239974.1990
Abstract
Income Inequality is one of the most important indicators for evaluating the real sector’s performance, while inflation, as a key macroeconomic variable, interacts closely with real economic activities. Considering that reducing the income inequality is a primary objective of public sector economics and given that Iran’s Income Inequality and inflation rates have been unsatisfactory over the past decades, examining the effect of inflation on income inequality in Iran is of great importance. This study employs a structural time series approach and the concept of implicit trends, incorporating an unobserved variable, to analyze the relationship between inflation and income inequality in Iran over the period 1984–2023. The results indicate that, during the study period, the coefficients of the inflation rate and its square were statistically significant, with positive and negative signs, respectively, suggesting an inverted-U relationship between inflation and income inequality, with an inflation threshold of 25 percent. In other words, income inequality with increase of inflation rate up to 25%, has increased and after passing this limit, it has decreased. Based on the findings of this study, it is recommended that inflation be maintained at low and stable levels. If inflation in Iran is not effectively controlled, its consequences will primarily benefit the wealthy.
Keywords
Inflation
Income Inequality
Structural Time Series
Iran
Subjects
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