Assessing the Impact of Credit Policy on Income Inequality in Rural Areas of Iran

Increasing inequality and concentration of incomes in the upper-income classes is the main reason for the decline in living standards of people in the lower-income classes. Therefore, adopting policies to combat rising inequality in income distribution will be directly related to reducing the spread of poverty in poorer communities and low-income groups. In this study, the effect of credit policy on income inequality in rural areas of Iran was evaluated using the approach of the autoregressive distributed lag model (ARDL) and time series data from 1986-2018. The results showed that the implementation of credit policy has had a significant effect on reducing income inequalities in rural areas in the short and long run. Also, the results showed that increasing the real capital stock of the agricultural sector and increasing the share of income from rural living costs reduces income inequalities in rural areas in Iran. However, the real growth of the agricultural sector and subsidies for agricultural items were recognized as factors in increasing income inequality in rural areas of Iran. Finally, in order to reduce income inequality in rural areas of the country, pursuing and continuing the implementation of credit policy due to its sustainable and long-run effects on reducing inequality in rural income distribution in the country is the first policy recommendation in this study. In addition, facilitating capital increase processes in the agricultural sector with a focus on micro-beneficiaries is another policy recommendation in this study that can facilitate the implementation of credit policy by supporting the receipt of credit for micro-owners.