Dynamics of consumption distribution and economic fluctuations

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 left-hand side of consumption distribution or the consumption of households with low education levels. Also, the shocks reduce consumption inequality among consumers.