The Study of the Relationship between Income Distribution and Economic Grawth in Iran

The main purpose of this article is to investigate the relation between inequality and economic growth based on the Granger's causality test and Johnson's cointegration approach within a cointegrating VAR model. Data obtained from the annual information of 1350-1381 period shows that there is a one-way causality relation running from income inequality to economic growth. In other words, inequality variations are the causes of changes in economic growth. But, based on the results of the same test, we do not see any causality relation from economic growth to inequality.Moreover, this article makes an effort to obtain –using the time series data and cointegratin approach within a VAR model– a long-term equilibrium relationship between these variables, based on the complete capital market model and the imperfect capital market model. Based on the results obtained, one can say that increased income inequality in the long term is the cause of reduction in economic growth. The results obtained are consistent with the expectation about imperfections of the capital market in Iran.