Analyzing the Causal Relationships between Economic Growth, Income Inequality, and Transmission Channels: New Empirical Evidences from Iran

Abstract

This paper investigates causal relations between economic growth, income inequality, and transmission channels from 1972 to 2016. These channels include saving rate, investment rate, redistribution policies, human capital, and conspicuous consumption. There is no strong evidence that supports uni-directional or bi-directional causality. Besides, some of the transmission channels lead to the improvement of economic growth and equality simultaneously. It is concluded that rapid economic growth and income inequality alleviation are not necessarily conflicting objectives. Hence, the strategy of “Redistribution with growth” is a more effective and perhaps politically more acceptable approach than “growth before redistribution” or “redistribution before growth” strategies.