Dynamics of consumption distribution and economic fluctuations

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Dynamics of consumption distribution and economic fluctuations Reza Najarzadeh1   · Alireza Keikha1 · Hassan Heydari1 Received: 30 November 2019 / Accepted: 28 September 2020 © Springer Science+Business Media, LLC, part of Springer Nature 2020

Abstract This study aims to investigate the dynamics of consumption distribution and to determine how it is affected by macroeconomic fluctuations based on two different types of household classifications: education level of household heads and consumption deciles. The urban Households Income and Expenditure dataset issued by the Statistical Center of Iran and a Factor Augmented Vector Auto Regressive model are used to assess the goals of this study. In other words, we study the consumption responses of different kinds of families to macroeconomic fluctuations. The following results were obtained from statistical analysis and estimation of the model. First, the standard deviation of the (log) real per capita consumption of the lowest group, families that have a head with the lowest education attainments or the first decile, is higher than that of others implying that the Iranian economic fluctuations impose higher costs on the less educated households. Secondly, each of the four education consumption groups and consumption deciles follow the ups and downs of GDP. Lastly, a positive oil revenue shock has only a significant positive impact on the lefthand side of consumption distribution or the consumption of households with low education levels. Also, the shocks reduce consumption inequality among consumers. Keywords  Consumption · Education · Inequality · Economic fluctuations JEL Classification  D12 · D63 · E21

* Reza Najarzadeh [email protected] Alireza Keikha [email protected] Hassan Heydari [email protected] 1



Department of Economics, Tarbiat Modares University, Tehran, Iran

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Economic Change and Restructuring

1 Introduction The annual reports of the Iranian Central Bank show that the average consumption of food and beverages has decreased by about 8% from 2013 to 2016 in Iran, implying that the livelihood conditions have recently changed (Iranian Central Bank Database 2018). Such reports along with many other interviews and reports by researchers in economics and social sciences indicate that the household’s welfare level is now one of the most important economic issues in Iran, requiring in-depth research to probe into its various aspects. The present study focuses on household consumption expenditures. The consumption distribution is examined for two different types of household classifications: consumption deciles and education categories. The education level of household heads is a permanent characteristic of households and analyzing consumption based on this feature can reveal important information about the household’s welfare level (Autor et al. 2008). We then study the effects of macroeconomic shocks on consumption distribution using a Factor Augmented Vector Auto-Regressive (FAVAR) model. We aim to answer