Oil Rents Shocks and Inequality in Iran

We study the short and long run responses of income inequality to positive per capita oil and gas rent shocks in Iran. Using historical data from 1973 to 2012 and vector autoregression (VAR)-based impulse response functions, we find a positive and statistically significant response of income inequality to oil rent booms within 4 years of the shock. In addition, the Autoregressive-Distributed Lag (ARDL) results show that in the long run, a 10-percent increase in oil and gas rents per capita leads to an approximately 1.4-percent increase in income inequality. The results are robust to controlling for different channels potentially affecting the income distribution in Iran. Our analysis can help policymakers evaluate and accommodate the possible positive or negative effects on inequality in Iran resulting from the 2016 lifting of the embargo against the country.