Optimal Amount of Government Expenditure Components with the Goal of Reducing Income Inequality (The Case of Iran)

Government expense is an important financial tool for empowering the poor. In such a way that the government provides a suitable environment for the business of people by investing in the fields of defense, judiciary, legislation, order and security. In addition, by providing social services such as education, health, social security, and transportation, communication, energy and infrastructure, the government causes an increase in human capacity for earning more money leading to the reduction of poverty and inequality. The purpose of this study is to estimate the optimal amount of government expenses in economic, social and cultural, defense and security, public affairs. Related chapters aim at minimizing income inequality. In this regard, the threshold regression model and the simplex linear programming algorithm are used for estimating the time series data during the period 1971-2019. The results reveal that the optimal amount of government expenditure total should be equal to 19.2% of GDP to reduce the income inequality. Also, for reducing the income inequality, the optimal amount of public, defense, social and economic expenses in GDP should reach 1.1, 2.35, 10.2 and 5.5 percent, respectively. Moreover, among the chapters, the optimal amount of education, health and defense chapters with the highest priority should be 6.5, 2.25, 1.79% of GDP, respectively. Furthermore, other chapters have different effects on income inequality.