Exploring the Links Between Education and Income Inequality at the Municipal Level in Greece

Abstract

This paper builds upon the EU2020 strategy, following the smart and inclusive growth paradigm, that treats human capital as a central component of regional development. However, there are cases of smart growth policies, focusing on skills’ empowerment, which may not yield the expected results, in terms of social cohesion aspects. Given this fact, the role of regional specificities, such as the extent to which an economy is characterized by a knowledge-based structure, constitute essential parameters that need to be taken into consideration during a policy-design process. This study aims to provide an evidence-based sub-regional analysis to assist processes regarding place-based policy design for socio-economic inclusion, in the case of Greece. More specifically, it investigates the links between education and income inequality, at a municipal level during the period 1994–2012, using a balanced panel dataset. The results indicate a negative effect of educational level on the formation of income inequality, probably due to the lack of an advanced knowledge-based economic structure in the case of the Greek economy. The significance of incorporating local particularities in the analysis, such as human capital endowments and time-varying socio-economic disturbances, as the 2008 economic crisis, is also stressed. Finally, the econometric method used in this paper includes the development of a DSEM model estimated by a system GMM estimator.