Inequality in EMU: is there a core periphery dualism?

Abstract

Income inequality has had a minor role in the European integration process’ institutional framework. This is unfitting given that reducing disparities has been one of the most explicit goals of EU, which has consequently devoted an increasing share of its budget to regional policy. This issue has potentially relevant policy implications because if the European integration has a role in increasing inequalities within member countries it is harmful for social cohesion. This paper intends to assess inequality determinants in EMU countries and whether the European integration process has been itself among them. It performs an empirical investigation on a panel of 12 EMU member States in the period 1980-2015. The contribution of this paper to the literature is twofold: first, it focuses on the effects of European integration on inequality in EMU countries over the last 25 years, on which the evidence is still scarce. Second, it tries to disentangle the European integration impact on inequality in core and periphery EMU countries. The empirical evidence suggests that the effects of the European integration process, captured by trade and financial openness indicators, on income inequality was heterogeneous across country groups. Once disentangling the country sample in core and periphery groups, as identified by the relevant literature, estimate results seem to support the hypothesis of a core periphery dualism also for what concerns income inequality trends within the EMU.