The Impact of Income Inequality on Household Consumption in Iraq After 2004

This study investigates the impact of income inequality on household consumption expenditure in Iraq during the post-2004 period, a phase characterized by profound political, economic, and structural transformations. The Iraqi economy, as a rentier system heavily dependent on oil revenues, has experienced substantial income fluctuations that have widened income disparities and influenced household spending behavior. Drawing on both classical and modern consumption theories—namely Keynesian consumption theory, the permanent income hypothesis, the life-cycle  hypothesis, and the Duesenberry effect—this research employs a Nonlinear Autoregressive Distributed Lag (NARDL) model to capture the asymmetric relationship between individual income and household consumption expenditure. Using quarterly data covering the period 2004–2023, the empirical results confirm the existence of a long-run, non-linear, and positive relationship between income and household consumption in Iraq. The findings reveal that increases in income exert a stronger effect on consumption than income decreases, reflecting asymmetric adjustment behavior consistent with relative income and ratchet effects. Moreover, short-run deviations from equilibrium are corrected  relatively quickly, indicating a stable long-run relationship between the variables. The study highlights the vulnerability of household consumption to income shocks driven by oil price volatility and underscores the importance of equitable income distribution, economic diversification, and effective social protection policies in enhancing consumption stability and overall economic resilience in Iraq.