Threshold Effects of Financial Incentives and Agricultural Economic Reforms on Income Inequality in the Provinces of the Country
Keywords:
Country’s Provinces, Financial Incentives, Economic Reforms, Agricultural Sector, Income InequalityAbstract
Over the past centuries, perspectives on the role of the state and the rationale for its existence have undergone repeated transformations and reassessments. These shifts in perspective have led to corresponding changes in the duties and responsibilities assigned to governments, and consequently, to alterations in the size and composition of public expenditures. What remains critically important in the context of government and its economic influence is the share of government in the economy and the methodology used to measure the effects of its components on production and societal welfare. From a human development perspective, emphasis on capacity building rather than mere consumption of goods and services provides conditions for the sustainable expansion of human choices, which is achieved through the development of mental capacities, particularly through education. This study examines the threshold effects of financial incentives and economic reforms in the agricultural sector on income inequality across the provinces of the country. In terms of purpose, the research is applied, and in terms of nature, it follows a descriptive-analytical approach. The income inequality model for the provinces is estimated over the period from 2006 to 2024 using the Panel Smooth Transition Regression (PSTR) method. By employing a PSTR model in which the transition variable is government credit facilities allocated to the agricultural sector, the income inequality function across provinces is modeled. Given the confirmation of nonlinearity, the analysis proceeds with the nonlinear component of the model. According to the estimation results in the nonlinear section, the coefficient of per capita gross domestic product growth at the provincial level has a negative and statistically significant effect on income inequality at the 95% confidence level. As expected, the unemployment rate variable exhibits a positive (direct) effect on income inequality in the nonlinear model. Variables such as credit facilities allocated to the agricultural sector, development (capital) budget expenditures, and the active labor force in the agricultural sector have an inverse effect on income inequality, contributing to its reduction, and these effects are statistically significant at the 5% level. The inflation rate has a positive effect on income inequality, while the exchange rate has a negative effect. An increase in the exchange rate enhances export incentives in the agricultural sector, which in turn leads to an improvement in income distribution.
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Copyright (c) 2025 Moien Sadeghi (Author); Shahriar Nessabian; Nader Mehrgan, Azadeh Mehrabian (Author)
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