According to the Ahlowalia hypothesis (1995), the growth of total factor productivity (TFP) beside infrastructure investments of government lead to income inequality decrease in rural areas of countries. The main objective of this study is to investigate the effects of public investments such as agricultural R&E, road, education and irrigation on income inequality in rural areas of Iran. In order to get results, we used ARDL method and time series data of 1980 to 2008. However, this research attempts to survey the direction of causality between the income inequality and total factor productivity (TFP) in Iran. Empirical results show there is a negative relation between income inequality and agricultural TFP in rural areas of Iran. Hence, additional investments on rural education and agricultural R& E have significance and different impacts on income inequality. Findings showed Ahlowalia hypothesis developed for the relation among income inequality, TFP and investment in electricity is not rejected in case of Iran’s rural areas.