The Effect of Black Market Premium and Asymmetric Inflation and Unemployment on Income Inequality in Iran

Document Type : Research Paper

Authors

1 Assistant Professor/ University of Mazandaran

2 Master of Science in Economics Science, University of Mazandaran, Babolsar

Abstract

The expansion of the dual exchange system (official and unofficial) increases the concerns about imbalances in macroeconomic variables, particularly, income inequality. Also, Inflation and unemployment are as the macroeconomic variables that can affect income inequality. Accordingly, the present study wants to investigate the role of the black market premium (Dollar) and the asymmetric effect of the unemployment rate and inflation on income inequality. For this purpose, based on the annual data between 1978 and 2017, a non-linear autoregressive distributed lag approach has been used in estimation. The results show that the black market premium in both linear and non-linear forms has a positive (undesirable) effect on income inequality. Unemployment in linear form has a positive (undesirable) effect on income inequality only in the long run. In non-linear form, the decreases in unemployment have a positive (desirable) effect on inequality in the short run. In the long run, both increases and decreases in unemployment have a direct impact on income inequality and the value of the desirable effect of decreases in unemployment is more than the undesirable effect of increases. Thus, the impact of asymmetric unemployment is confirmed on the income inequality in both the short and long run. Inflation in linear form has a direct effect on income inequality, but in non-linear form, both in the short and long run, decreases in inflation have a positive (desirable) effect on inequality. Hence, inflation also has an asymmetric effect on income inequality. Another finding is that the desirable effect of decreases in unemployment on income inequality is more than the desired effect of decreases in inflation on income inequality.

Keywords

Main Subjects

References

  1. Abounoori, E., & Khoshkar, A. (2006). The effect of macroeconomic indicators on income distribution in Iran: An inter-provincial study. Journal of Economic Research, 77, 65-95 (in Persian).
  2. Akhavi, A. (2008). Inequality in the distribution of income Analytical analysis of causes, consequences and policies. Tehran, Publishing Institute of Business Studies and Research (in Persian).
  3. Alexander, S. S. (1952). Effects of a Devaluation on a Trade Balance. Staff Papers (International Monetary Fund), 2(2), 263-278.
  4. Al-Marhubi, F. A. (2000). Income inequality and inflation: The cross-country evidence. Contemporary Economic Policy, 18(4), 428-439.
  5. Asgary, A. (1998). An Overview of Inflation and Income Distribution in the Country. Journal of Business Reviews, 51, 5-23 (in Persian).
  6. Bahmani-Oskooee, M., Goswami, G. G., & Mebratu, S. (2006). Black market premium and income distribution. Journal of Developing Areas, 39(2), 17-28.
  7. Bahmani-Oskooee, M., Miteza, I., & Nasir, A. B. M. (2002). The long-run relation between black market and official exchange rates: evidence from panel cointegration. Economics Letters, 76(3), 397-404.
  8. Bakker, A., & Creedy, J. (2000). Macroeconomic variables and income distribution: Conditional modeling with the generalized exponential. Journal of Income Distribution, 9(2), 4-4.
  9. Cole, J. D., & Towe, M. C. M. (1996). Income distribution and macroeconomic performance in the United States (No. 96-97). International Monetary Fund.
  10. Dahmardeh, N., Safdari, M., & Shahiki, T. M. (2010). The Effect of Macroeconomic Indices On Income Distribution in Iran. Iranian Journal of Trade Studies, 14(54), 25-55 (in Persian).
  11. Del Rosal, I. (2011). The empirical measurement of rent‐seeking costs. Journal of Economic Surveys, 25(2), 298-325.
  12. Deyshappriya, N. R. (2017). Impact of Macroeconomic Factors on Income Inequality and Income Distribution in Asian Countries.
  13. Diallo, O. (2007). Poverty and Real Exchange: Evidence from Panel Data. Journal of African Development, 9(1), 67-104.
  14. Edwards, S. (1986). Are Devaluations Contractionary? The Review of Economics and Statistics, 501-508.
  15. Galli, R., & Hoeven, R. V. D. (2001). Is inflation bad for income inequality: The importance of the initial rate of inflation, Employment Paper, No. 2001/29, ILO.
  16. Ghorbani, H., Ghaffari, H., Nori, A., Taqvaei, E. (2017). The Effect of Macroeconomic Variables on Income Distribution in Iran (with Emphasis on Targeted Subsidies). The Macro and Strategic policies, 5(18), 143-158 (in Persian).
  17. Heer, B., & Sussmuth, B. (2007). Effects of inflation on wealth distribution: Do stock market participation fees and capital income taxation matter?. Journal of Economic Dynamics and Control, 31(1), 277-303.
  18. Heer, B., & Süssmuth, B. (2003). Cold Progression and its Effects on Income Distribution (No. 951). CESifo Group Munich.
  19. Jorjorzade A, Eghbali A. (2005). An Investigation about the Effect of Oil Income on Income Distribution in Iran. Social Welfare, 5 (17), 207-226 (in Persian).
  20. Kafaei, S., & Dorostkar, E. (2007). Formal Education and Income Distribution. Iranian Journal of Economic research, 9(30), 53-76 (in Persian).
  21. Komijani, A. & mohammadzadeh, F. (2014). The Effect of Inflation on Income Distribution and Performance of Compensation Policies. Economic Research and Policies, 22 (69), 5-24 (in Persian).
  22. Laidler, D., & Parkin, M. (1975). Inflation: A Survey. The Economic Journal, 85(340), 741-809.
  23. Monnin, P. (2014). Inflation and income inequality in developed economies. CEP Working Paper Series.
  24. Nili, M., & Farahbakhsh, A. (1998). The Relationship between Economic Growth and Income Distribution. Journal of Planning and Budgeting, 35 (34), 121-154 (in Persian).
  25. Nouferesti, M., & Mohammadi, F. (2009). Analyzing the Effects of Macroeconomic Shocks on Income Distribution in Iran. Iranian Journal of Economic research, 13(38), 31-52 (in Persian).
  26. Parsa, O. A., Hosseinzadeh, J., Yazdankhah, M., Allah Rezaie, A. & Farrokhal, M. (2018). Why is public perception of rising living costs and prices different from the official inflation rate? Statistical Center of Iran (in Persian).
  27. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds Testing Approaches to the Analysis of Level Relationships, Journal of Applied Econometrics, 16, 289-326
  28. Saunders, P. (2002). The Director and Indirect Effects of Unemployment on Poverty and Inequality. Australian Journal of Labour Economics (AJLE), 5(4), 507-530.
  29. Schultz, T. P. (1969). Secular Trends and Cyclical Behavior of Income Distribution in the United States: 1944–1965. In Six papers on the size distribution of wealth and income, 75-106.
  30. Seifeepour, R., & Rezaee, M. (2011). An Analysis of the Effective Factors on Income Distribution in Iran with the Emphasis on Taxes. Journal of Tax Reasearch. 19(10), 121-142 (in Persian).
  31. Sepehri, A. (1992). The Influence of Macro Policies on Income Distribution (MSc Thesis). Allameh Tabatabaei University (in Persian).
  32. Shakeri, A., Jahangard, E., & Aghlami, S. (2014). The nonlinear effect of inflation on income inequality in Iran. The Economic Research, 13(4), 27-53 (in Persian).
  33. Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in Honor of Peter Schmidt (pp. 281-314). Springer, New York, NY.
  34. Siami-Namini, S., & Hudson, D. (2017). Inflation and Income Inequality in Developed and Developing Countries.
  35. Sylwester, K. (2003). Changes in income inequality and the black market premium. Applied Economics, 35(4), 403-413.
  36. Tyson, L. D. A. (1998). Commentary: how can economic policy strike a balance between economic efficiency and income equality?. Income Inequality: Issues and Policy Options, 337-343.
  37. Zibaei, H. (2005). Assessing the Contribution of Inequality and Income Distribution in Iran. Journal of Planning and Budgeting, 91, 67-29 (in Persian).

Files

Share

How to cite

Statistics