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The Effect of Macroeconomic Volatility on Income Distribution of Iranian Households

Shakerian, Mansour | 2020

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  1. Type of Document: M.Sc. Thesis
  2. Language: Farsi
  3. Document No: 52886 (44)
  4. University: Sharif University of Technology
  5. Department: Management and Economics
  6. Advisor(s): Nili, Masoud
  7. Abstract:
  8. In this study, we investigate the effect of the macroeconomic volatility on the income distribution of Iranian households from two descriptive and causal aspects. In the descriptive section, by using the national accounts and the data on urban household expenditures and income, from the years 1997 to 2018, the relationship between macroeconomic variables and household budget is extracted, and the "Income Distribution-Business Cycle" is portrayed. In the causal section, a two-step reduced form model with fixed effects is used to estimate the effect of GDP fluctuations on inequality and income distribution fluctuations of Iranian households. This is done using the panel data from the aforementioned sources.The Income Distribution-Business Cycle relationship of Iran's economy has two components: relative volatilities and correlation coefficients. The study of relative volatilities as the first component of the stated relationship shows that the volatilities of income and expenditure of Iran's urban quintiles increase monotonically as we ascend through quintiles. That said, the lowest quintile is the least volatile, and the highest-paid quintile experiences the most volatilities. The second component represents the correlation coefficient between the deviation of GDP from its long-term trend and the deviation of income and expenditure of each quintile. The correlation coefficients for all of the quintiles are procyclical and display an Inverted-U shape relationship. In other words, the deviations of income and expenditure of all five quintiles from their long-term trends have the same direction as the deviations of GDP. This correlation apex for the urban middle class. As a result, the middle class experiences the greatest positive effects on expansions and the most negative effects on contractions.The effect of GDP’s fluctuations on inequality is studied as a causal relationship in this study. This regression shows that the effect of GDP fluctuations, due to changes in oil revenues, on the Gini coefficient, and inequality of urban and rural households, in all of the ten regions of Iran is negative and significant at 1%. That is, increasing GDP fluctuations will result in the Gini coefficient and inequality reduction
  9. Keywords:
  10. Volatility ; Business Cycle ; Income Distribution ; Inequality ; Economic Fluctuations ; Iranian Household

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