Testing the hypothesis of asymmetric effect of income inequality on economic growth in Iran

Explain the relationship between income inequality and economic growth of the areas challenging economic issues in recent decades, and despite extensive research in this area, it is still unclear lot in this regard there and experimental studies on a series of contradictory results led. In this paper we study the nonlinear effect of income inequality on the economic growth in Iran. We use a smooth transition regression model and annual data during the period 1973-2015 to investigate the asymmetric effect of income inequality on growth. We have identified two regimes in the model and in these regimes the income inequality has affected the economic growth differently. The results show that the Gini index has a positive effect on growth during the regime one (when the gini coefficient of less than 0/48), but it has a negative effect in the second regime (when the gini coefficient of higher than 0/48). Similarly, the financial development and government expenditure had affected the economic growth differently in different regimes.