The Impact of Provincial Budget Gap on Regional Income Disparity of Iran's Provinces by Using PVAR Model

This paper attempts to investigate the relationship among provincial construction and total budget gap with per capita income disparity as a regional inequality index among the nation provinces during 1385 to 1390 periods by using panel vector autoregressive approach. Based on the panel co-integration test there is a long run significant relationship among provincial income per capita disparity with provincial construction and total budget gap. Estimation results of PVAR model and analysis of impulse responses functions show that the budget gap shock has a positive impact on income per capita disparity and justifying the shock effect on income per capita lasts about six periods. The variance decomposition results of the shocks showed that the total and construction budget gap explain a considerable part of provincial income per capita disparity variation. The results emphasis on necessary to reduction gap in budget allocation to the nation provinces.