The Effect of Unemployment, Inflation, and Minimum Wage on the Income Inequality in the Rural Areas of the Iranian Provinces

Identification of the precise pattern of income distribution and factors affecting them is the main prerequisite for any policy to reduce inequality. Historical evidence and experiences of different countries show that unemployment and inflation together with minimum wage are some of the effective macroeconomic variables on income inequality. In this paper, based on rural household expenditure from 2001 to 2016, not only the Gini index but also the ratio of the wealthiest decile to the poorest decile as inequality indices of rural areas in different states has been calculated. Our result shows that inflation rate and the minimum wage have a significant negative effect on inequality indices while unemployment was not significantly stimulus on inequality. Moreover, based on our result, since cash transferred from the Iranian subsidy reform plan had a significant share in the income of low-income families increases a lot their expenditures while it was not a significant share of income for rich families and therefore did not have any effect on their expenditures. Hence, all in all, the Iranian subsidy reform plan decreases inequality in income distribution in years after implementing this policy.