The Effect of Financial Development on Income Inequality in Iran: A Review of the Role of Human Capital

With homogeneity of human capital, financial institutions in the process of credit allocation, only need to use indices of physical capital, financial strength and credit backgrounds of applicants as the basis for their decision which its consequence is conflicting results in the researches. The new literature, emphasizes the heterogeneity of human capital and explain the existence of a complementary relationship between human and physical capital accumulation and suggests that lack of attention to these aspects, will lead to misleading results. In this paper, we have been studied this relationship in Iran under the premise the heterogeneity of human capital and it has been tested the effect of the combination of human capital and physical capital accumulation on income inequality using threshold regression model. The results over the period 1969-2014 show that, human capital apart from direct effect on income inequality, in combination with physical capital, has a simultaneously separate effect on income inequality.