Analyzing the Nonlinear Effect of Inflation Uncertainty on Income Inequality in Iran

Previously, several studies have investigated the relationship between inflation and income inequality. But the main purpose of this article is to show that the unpredictability of inflation or the so-called uncertainty of inflation can also cause income inequality, because the weak sections of the society make wrong economic decisions due to not having capital market tools at their disposal when the economic situation is turbulent. In this study, the effect of inflation uncertainty on income inequality in Iran in the period of 1971-2021 was investigated. First, inflation uncertainty was calculated using the GARCH model and inflation data, and then the effect of inflation uncertainty on income inequality was estimated in the form of Autoregressive Distributed Lag (ARDL) and Nonlinear Autoregressive Distributed Lag (NARDL). The results indicate that in linear ARDL, inflation uncertainty does not have a significant effect on income inequality in the long run, but in NARDL, in the long term, inflation uncertainty has a positive and significant effect on income inequality. When uncertainty or inflation fluctuations decrease, income inequality in Iran decreases. This point is the main finding of this study. On the other hand, the increase in uncertainty has not had a significant effect on income inequality.