Determinants of Income Inequality in Iran's Provinces with an Emphasis on Taxes: a Bayesian Econometric Approach

The positive effects of equal income distribution on macroeconomic variables such as productivity, economic growth and poverty reduction and consequently economic and social welfare improvement on one hand, and adverse effects of income inequality on social variables such as crime and delinquency on the other hand, have made equal distribution to one of the major concerns of economic officials of the country. For this reason, over the recent decades, an extensive literature has been devoted to achieve an equitable income distribution and investigation into the determinants of income distribution improvement. This study has attempted to investigate the effects of different types of tax as well as some other factors on one of the most important inequality indicators (GINI index) in Iran’s provinces by a Bayesian Econometrics Approach and applying Bayesian Model Averaging (BMA). Finally, according to the theoretical and empirical evidence, it is found that Kuznets’ hypothesized inverted U-shaped relationship between economic development and income distribution is supported by data.