The Effect of Income Inequality on the National Savings in Iran

Document Type : RESEARCH PAPER

Authors

1 Assistant Professor ; Department of Economics, Faculty of Humanities, Ayatollah Azami Boroujerdi University; Lorestan; Iran

2 Professor of Economics, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamedan, Iran.

3 Economics, Faculty of Humanities - Ayatollah Boroujerdi University; Lorestan, Iran

Abstract

A high national savings rate leads to more investment in a nation's capital stock, which can increase productivity and economic growth over the long run. Therefore, identifying factors affecting national savings has particular importance. Income inequality is one of the influential factors impacting national savings. According to that, the current research has investigated the effect of income inequality on the national savings of Iran for the period of 1989-2020 by using the mixed data sampling approach. The findings of the research shows that income inequality has a hump-shaped effect on national savings. So, at low levels of inequality, the quantity of savings increases due to the transfer of income from the poor to the rich that have a high marginal propensity to save. But, after reach to a certain level of inequality, a more increase in inequality along with the country's economic situation (inflation, widespread sanctions, and the firm's economic recession) causes a decrease in employment and wages, which is associated with an increase in the number of poor in the society. The impact of the reduction in the poor's savings overcomes the influence of an increase in the rich's savings as the number of poor increases. Therefore, more increases in income inequality lead to a decrease in national savings. Also, variables of economic growth, real interest rate, and trade have a positive and significant effect on national savings. But variables of dependency burden, the effect of wealth, financial development, and economic sanctions have a negative and significant impact on national savings.

Keywords

References

 
منابع
Abdul Halim, M. A., Sultana, S., Akter, A., & Rahaman, A. (2016). Savings and Income Inequality in Bangladesh. Research Department& Monetary Policy Department Bangladesh Bank, Working Paper Series, WP No 1617, https://www.bb.org.bd/pub/research/workingpaper/wp1617.pdf.
Abrishami, H., & Rahimzadeh Namvar, M. (2006). The Assessment of the Effect of Financial Markets on the Rate of Private Saving in Iran. Tahghighat-E-Eghtesadi, 41(73), 1-35 (In Persian).
Aghajani, H., Karimi Tekanlou, Z., & Davodzadeh, S. (2022). Investigating the Nonlinear Effect of NonBank Financial Development on Economic Growth in Iran: The Markov-Switching Approach. Stable Economy Journal, 3(2), 130-154 (In Persian).
Alvarez‐Cuadrado, F., & Vilalta, M. E. (2018). Income Inequality and Saving. Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, 80(6), 1029-1061.
Athukorala, P. C., & Sen, K. (2004). The determinants of private saving in India. World development, 32(3), 491-503.
Bahrami, J., & Aslani, P. (2005). Determinants of Private Sector’s Saving In Iran. Iranian Journal of Economic Research, 7(23), 119-145 (In Persian).
Berube, G., & Cote, D. (2000). Long-Term Determinants of the Personal Savings Rate: Literature Review and Some Empirical Results for Canada. Bank of Canada Working Paper no. 3, from https://doi.org/10.34989/swp-2000-3.
Bofinger, P., & Scheuermeyer, P. (2019). Income Distribution and Aggregate Saving: a Non-Monotonic Relationship. Review of Income and Wealth, 65(4), 872-907.
Darku, A. B. (2014). Income inequality, status seeking, and savings rates in Canada. Canadian Studies in Population, 41(3–4), 88–104.
Dogani, A., & H. Mohammadi, H. (2016). The effect of income inequality on the level of private consumption in Iran emphasizing the degree of openness of the economy. Agricultural Economics Research, 7(4), 157-172 (In Persian).
Fakhrai, E., Mansoori, A. (2011). Estimating marginal propensity to consume for income groups on the basis of relative permanent income hypothesis in Iran. Knowledge and Development, 16(29), 21-38 (In Persian).
Fotros, M. H., & Maaboudi, R. (2011) Relationship between Income Inequality and Expenditure Inequality. Social Welfare Quarterly, 11 (40), 341-365 (In Persian).
Ghysels, E. Kvedaras, V. & Zemlys, V. (2014). Mixed Frequency Data Sampling Regression Models: the R Package MIDASr. Journal of Statistical Software 74(24): 1-35.
Ghysels, E. (2014). Matlab Toolbox for Mixed Sampling Frequency Data Analysis using MIDAS Regression Models. Available on Matlab at data at http://www. Mathworks. Com/matlabcentral/fileexchange/45150-MIDAS-regression.
Gu, X., Tam, P. S. Li, G., & Zhao, Q. (2020). An alternative explanation for high saving in China: Rising inequality. International Review of Economics & Finance, Elsevier69(C), 1082-1094.
Hussein, K. A., & Thirlwall, A. P. (1999). Explaining Differences in the Domestic Savings Ratio across Countries: A Panel Data Study. Journal of Development Studies, 36, 31-52.
Hoshmandy, H. (2009). A Research on Factors, Affecting National Savings in Iran. Quaterly Journal of Economic Modelling, 2(6), 177-204 (In Persian).
Jin, Y., & Li, H., & Wu, B. (2011). Income inequality, consumption, and social-status seeking. Journal of Comparative Economics, 39(2), 191-204.
Khanzadi, A., & Ghaderi, S. (2021). Assessing the Impacts of Direct and Indirect Taxes on Private Investment in Iran. Stable Economy and Sustainable Development, 1 (1), 61-78 (In Persian).
Koo, J., & Song, Y. (2016). The relationship between income inequality and aggregate saving: an empirical analysis using cross-country panel data. Applied Economics, 48:10, 892-901.
Lebeta, E. K., & Biyena, D. C. (2021). Determinants of National Saving in Ethiopia: Time Series Analysis. International Journal of Finance and Banking Research, 7(3), 65-75.
Li, H., & Zou, h. (2004). Savings and Income Distribution. Annals of Economics and Finance, 5, 245–270.
Noferesti, M., & Ahmadi, M. (2008). Analyzing the Effect of Changing Age Distribution on National Saving. Quarterly Economic Research Journal; 8(1), 43-56 (In Persian).
Noferesti, M., Varahrami, V., & Dashtban Farooji, S. (2018). Effect of Changes in Age Structure of the Population on Government Consumption Expenditure: An Approach of Mixed Frequency Data Sampling (MIDAS). Journal of Sustainable Growth and Development (the Economic Research) 18(3), 103-123 (In Persian).
Mojtahed, A., & Karami, A. (2003). Evaluation of Effective Variables on Behavior of National Saving in Iranian Economy. Iranian Journal of Trade Studies (ijts), 7(27), 1-28 (In Persian).
Monadi, F., Sohaili, K., & Azami, S. (2019). Evaluation of the Effect of Changing Population Age Structures on National Saving in Iran. Economic Growth and Development research (EGDR), 9(33), 183-196 (In Persian).
Schmidt-Hebbel, K. & Serven, L. (2000). Does Income Inequality Raise Aggregate Saving? Journal of Development Economics, 61(2), 417-446.
Smith, D. (2001). International evidence on how income inequality and credit market imperfections affect private saving rates. Journal of Development Economics, 64(1), 103-127.
Tran, N. D., Ong, C. N., & Nguyen, Q. D. N. (2020). The Relationship between Income Inequality and Savings: Evidence from Household‐Level Panel Data in Vietnam. Journal of Applied Economics, 23(1), 709-728.
Yao; Q., Hou; D., & Cheng, L. (2021). Precautionary Saving, Inequality and Fiscal Policy: a Hank Model. Economic Computation & Economic Cybernetics Studies & Research, 57-72.
Zhao, Q., Li, G., Gu, X., & Lei, C. K. (2021). Inequality hikes, saving surges, and housing bubbles. International Review of Economics & Finance, 72(C), 349-363.

Files

Share

How to cite

Statistics