Document Type : Research Paper
Authors
1 Associate Professor in Energy Economics, Faculty of Economics and Administration Sciences, University of Mazandaran, Babolsar, Iran.
2 PhD candidate in Econometrics, Faculty of Economics, Allameh Tabataba'i University, Tehran, Iran.
Abstract
Crude oil and the rents derived from it can present both advantages and disadvantages for oil-rich countries. Numerous studies have examined the impact of oil rents on various variables such as economic growth, inflation, and financial development. Among these, the potential role of oil rents in income inequality, particularly in light of the underground economy, appears to have been overlooked in previous domestic studies. To address this gap, the present research first calculates the relative size of the underground economy using a MIMIC method, revealing an average of 16.8% in Iran’s economy. Subsequently, employing a nonlinear autoregressive distributed lag (NARDL) approach, the study investigates and tests the effect of oil rents on income inequality while considering the underground economy over the period from 1978 to 2022. The long-run results indicate that positive shocks in oil rents are associated with a desirable (negative) effect on income inequality, while negative shocks lead to an undesirable (positive) effect. Furthermore, the underground economy acts as a double-edged sword; that is to say, an increase in the relative size of the underground economy has the potential to turn the favorable (negative) impact of positive oil rent shocks on income inequality into an unfavorable one, and conversely, it can transform the unfavorable (positive) impact of negative oil rent shocks on income inequality into a favorable one. Additionally, real GDP per capita exhibits an inverse U-shaped relationship with income inequality, while unemployment positively influences income inequality.
Keywords
Main Subjects
)