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Keywords
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Keywords: Financial Markets, Income Inequality, TVECM, Nonlinear Cointegration, Iran’s Economy
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Abstract
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Different theories have different predictions about the relationship between
financial development and income inequality that leads to two broad categories
of thought with two conflicting theoretical hypotheses. This study examines the
effect of financial development on income inequality in the Iran’s economy by
using a Threshold Error Correction Model (TVECM) form 1971 to 2013. The
results of TVAR.LR test show that the model has only one threshold. The results
of the TVECM.Seo and TVECM.HS tests represent a threshold cointegration
between the variables. Also, the results of Threshold Error Correction equation
indicate that before reaching the threshold value, an increase in financial
development causes increases in the Gini coefficient. But after reaching the
threshold value, financial development reduces income inequality (decreases
Gini coefficient) in the Iran’s economy.
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