Analysis of Relationship between Per Capita Income Growth, Household Debt and Income Inequality (Case Study: Iranian Provinces)

After world recession in 2008, many papers focused on non-linear relationship between debt and growth. Based on traditional theories, a medium level of increase in debt can improve welfare and economic growth, but a high level of it damages the economy. According to recent studies, the non-linear relationship between public debt and growth is conceivable for other debt items such as household debt and firm debt. In this paper, we test the non-linear relationship between household debt and the growth of per capita income in 31 Iranian provinces during period 2005-2015. In addition, we analyses the different threshold points in Iranian provinces related to above-mentioned non-linear relationship. Based on our findings, we accept the hypothesis of reverse-U relationship between debt and growth in addition to the effect of income inequality on heterogeneity of this relationship in Iranian provinces. The results indicate that provinces with high income inequality have high threshold point than regions with low income inequality, but in the latter ones the sensitivity of economic growth to change of debt is higher.