Abstract
Rising income inequality has become a major concern for policymakers and academic researchers. Very high levels of income inequality may result in serious social, political, and economic problems. In this paper, I analyze the trend of Gini index, which is the most commonly used measure for income inequality, to see if the current trend is sustainable in the long run for OECD and major non-OECD countries. Specifically, I use autoregressive time series models to test the sustainability of income inequality. I first analyze the Gini index to see if the time series is stationary and has a steady-state value below 1. If the series has a unit root, I take the first difference and check if the first difference is stationary and has a 0 or negative steady-state value. Results show that while many countries show signs of sustainability, there are a few countries that do not.
Highlights
Rising income inequality has become a major concern for policymakers, economists, and other social scientists
I show the results from autoregressive time series analysis
It could be that when we reduce the sample period, the period after the global financial crisis, during which income inequality has been reducing or increasing at a lower rate, takes a larger portion of the sample
Summary
Rising income inequality has become a major concern for policymakers, economists, and other social scientists. According to the World Inequality Report 2018 [1], the top 10% earners’ share in the total national income in 2016 was 47% in US–Canada, 41% in China, and 37% in Europe These figures have increased remarkably except for Europe. The current trend of rising income inequality has put income distribution back in the major topic of economic research [2]. Unlike the prediction of Kuznets, the level of income inequality has not fallen back despite the rapid economic growth in the second half of the 20th century Instead, it is continuously rising and has become a major social and political problem. The share of single-headed households is increasing and the match between a high-earning man and a high-earning woman is increasingly common (so called “assortative mating”) Both of these factors worsen income inequality [7].
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