The Effects of Demographic Transition on Government Expenditure and Income Distribution in Iran: An Application of Threshold Cointegration

In this paper, we study the effects of demographic transition on government expenditure and Income distribution for Iran’s economy during 1969-2011 using threshold cointegration technique. The results, shows that the year 1986 is the break date of demographic transition. Therefore the whole period is divided into two regimes, 1969-1986 and 1987-2011. The main results of this paper is that, there is a threshold cointegration between demographic transition, government expenditure and income distribution. So, there is long-term equilibrium relationship between them. But, there isn’t any short-term relationship between them. Also, the results of the estimation of error correction model show that adjustment of short-term equilibrium to long-term equilibrium is faster in the second regime rather than the first one.