The Role of Economic Growth Regimes in the Influence of Financial Globalization and Government Expenditure on Income Inequality in Iran

Mohamadian, Fereshteh; Mohammed Ahmed, Abdulrahman; Ablihl Salloom, Hatem

doi:10.22126/pse.2026.13334.1228

The Role of Economic Growth Regimes in the Influence of Financial Globalization and Government Expenditure on Income Inequality in Iran

Document Type : Original Article

Authors

¹ Assistant Professor, Department of Economics, Faculty of Literature and Humanities, University of Ilam

² Master's student in Economics, Faculty of Literature and Humanities, Ilam University, Ilam, Iran

10.22126/pse.2026.13334.1228

Abstract

Economic growth is one of the key factors in determining income inequality, which can influence the impact of other economic factors, such as financial globalization and government spending, on the income gap. This study examines the role of the economic growth threshold in the effect of financial globalization and government spending on income inequality in Iran, using data from 1980 to 2022 and the Threshold Autoregressive method. The results show that the effect of the variables on income inequality is dependent on the economic growth threshold (8.63%) in two different regimes. In the first regime, where economic growth is below the threshold, economic growth and foreign direct investment have a positive and significant effect on inequality, while government spending and financial globalization have a significant diminishing effect. In the second regime, with economic growth above the threshold, financial globalization and government spending have a greater impact on reducing the income gap, and the effect of economic growth reverses, leading to a reduction in inequality, which supports the Kuznets hypothesis. Therefore, economic policies should be designed based on the level of economic growth and purposefully aimed at reducing income inequality.Economic growth is one of the key factors in determining income inequality, which can influence the impact of other economic factors, such as financial globalization and government spending, on the income gap. This study examines the role of the economic growth threshold in the effect of financial globalization and government spending on income inequality in Iran, using data from 1980 to 2022 and the Threshold Autoregressive method. The results show that the effect of the variables on income inequality is dependent on the economic growth threshold (8.63%) in two different regimes.

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