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The Impact of Redistribution of Opportunities on Income Inequality: A CGE Approach

Haqiqi, Iman and Mortazavi Kakhaki, Morteza (2012): The Impact of Redistribution of Opportunities on Income Inequality: A CGE Approach. Published in: Journal of Economic Modeling Research , Vol. 2, No. 7 (2012): pp. 51-73.

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The allocation of opportunities affects income distribution and income inequality. This paper analyzes the economic impacts of the initial allocation of resources and redistribution of opportunities. In this study, we apply a computable general equilibrium (CGE) model focusing on the distribution of opportunities and allocation of available resources. The differences between households' income are caused by differences in labor income (skilled and unskilled) and the household's income from capital stock. The model is calibrated based on the micro consistent matrix (MCM) of the Iranian economy. We found that the redistribution of opportunities and re-allocation of resources can reduce inequality. In other words, improvement inequality of opportunities leads to more equal society. The important finding of the study is that an increase in inequality of opportunity may cause the income gap grows faster. So, big reduction in inequality of income after a small reduction in inequality of opportunities can be witnessed.

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