Can an oil-rich economy reduce its income inequality? Empirical evidence from Alaska's Permanent Fund Dividend

Abstract

The main focus of this paper is to empirically examine the effect of the Permanent Fund Dividend (PFD) payouts on Alaska's income inequality by taking into account the roles of income and population. To that end, an autoregressive distributed lag (ARDL) approach to cointegration and the Johansen cointegration approach are applied to annual time series data from 1963 to 2012. We find that the PFD payouts tend to worsen income inequality in Alaska in both the short- and long-run. We also provide evidence to support the existence of Kuznets' hypothesis for Alaska – growth deteriorates income inequality initially and improves it later. Finally, population is found to reduce Alaska's income inequality in the short- and long-run.