Abstract
The relationship between income inequality and macroeconomic activity has been extensively investigated for many countries, with mixed evidence over the years. In this context, the aim of the paper is to study this relationship for the Peruvian economy with emphasis on the variables statistical properties. To that end, unit root time series bootstrap simulations are applied, additionally, social and financial variables are used to explain changes in inequality. As a result, no evidence of this relationship is found when variables time series properties are taken into account so new empirical evidence on this issue is critical in light of rising income inequality worldwide and its pervasive effects on society.
Highlights
The relationship between income inequality and macroeconomic activity was analyzed for the first time by Blinder and Esaki (1978)
From both models it is clear that income inequality is not related to macroeconomic activity and the election of an inequality measure index has no effect on the statistical significance of this relationship
The impact of lower real interest rates is limited owing to small financial markets and developing banking system in the Peruvian economy, it means that wide segments of the Peruvian economy have no access to credit and capital
Summary
The relationship between income inequality and macroeconomic activity was analyzed for the first time by Blinder and Esaki (1978). More than 30 years after that seminal paper, new econometric methods were developed, more reliable datasets are available and new economic variables were introduced in the relationship. The way the relationship is analyzed became more complex and additional care is needed in the application of statistical procedures as well as dataset elaboration. Keeping in mind the previous lines, the purpose of the paper is to analyze the relationship between income inequality and the macroeconomic activity for the Peruvian economy in a rigorous way. The Peruvian economy is attractive to study due to its historical high levels of income inequality and recently economic expansion.
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