The Effect of Combined Government Expenditure on Income Inequality Regimes in Iran

Income Inequality is one of the most important issues that has attracted the attention of many thinkers, researchers and politicians. One of the most important variables affecting the income inequality is the level and the kinds of government expenditures that can have a different effect on income inequality. The purpose of this paper is to investigate the effect of the composition of government social spending on income inequality regimes in the Iranian economy. For this purpose, using the Markov switching method, the factors affecting income inequality regimes have been modeled by emphasizing the effect of the composition of government social expenditures in the period 1974-2015. The results of the research model estimate show that the effect of the combination of government social spending on inequality regimes is like a threshold relation so that the ratio of health and welfare expenditures to total government spending before the threshold has a positive effect on inequality regimes and after the threshold, they have had a negative impact on inequality regimes. The threshold values of health expenditures to total expenditures and the ratio of welfare expenditures to total expenditures are estimated at 5.6 percent and one percent, respectively. But the results for the ratio of education expenditures to total government expenditures have varied. Before the threshold of 8.9% of educational expenditure, it had a decreasing effect on income inequality regimes, but after exceeding this threshold, educational expenditure had an increasing effect on income inequality regimes