Fiscal Policies and Income Distribution in Iran: FAVAR Approach

The aim of this paper is to examine the impact of government fiscal policies on income distribution. For this purpose FAVAR method and quarterly data for the time period of 1393:q4-1369:q1 for 99 macroeconomic variables have been used. Impulse response functions show that a positive shock as size one standard deviation in government current expenditure, increases Gini coefficient and as result worsens income distribution. While, government development expenditure as well as direct and indirect taxes shocks reduce Gini coefficient and improve income distribution. According to the Findings, the government can reduce income inequality by reducing unproductive costs, increasing targeted development spending and improving tax system.