Business Cycles and Its Role in Income Inequality in Iran

The main objective of this study is to evaluate the effect of business cycles on income inequality in Iran during the period 1969-2015. For this purpose, firstly, a model has been designed with the presence of fundamental variables affecting income inequality the business cycles variable. Then, business cycles have been extracted by three filters: Hodrick Prescott (HP), Baxter King (BP) and Cristiano Fitzgerald (CF). Finally, long-term relationship between the variables of model is estimated by Auto Regressive Distributed Lags (ARDL) method. The results show the negative impact of business cycles on income inequality indexes in Iran; in the sense that in periods of economic expansion reduced the income inequality and in periods of recession, this inequality, increased. Accordingly, it is important to apply appropriate policies, especially during the recession, in order to control the vulnerability of the lower classes of society during this period. According to other results, Average years of education of employees and the share of government spending in GDP have equalizer effect and income per capita and inflation have unequalizer effect in income distribution for Iran.