The Impact of Inflation and Unemployment on Income Inequality in Pakistan

Abstract

Income Inequality is the main obstacle in eradicating poverty. This research calculates the estimated degree of income disparity in Pakistan through various techniques. It finds out the impact of macroeconomic factors like inflation, unemployment and GDP growth rate on the degree of income inequality using logit model on data from 1980 to 2020. Gini Index shows that income inequality is more for urban regions as compared to rural areas of Pakistan. Whereas among the provinces, Punjab is suffering the most from unfair distribution of income. The regression results show the significance of all selected variables toward income inequality in Pakistan. It shows that inflation and unemployment have negative impact on Gini index while GDP growth rate has a positive influence which is quite possible in a developing country like Pakistan lagging behind in industrialization and service provisions. The study helps in making certain policies to reduce income inequality.