THE IMPACT OF SELECTED ECONOMIC DETERMINANTS ON INCOME INEQUALITY: THE CASE OF THE EU

Abstract

Income inequality particularly in advanced countries is one of the biggest problems of our time. Studies also state that the inequality in advanced countries is mainly associated with the recent crisis. This is why the EU 2020 Strategy aims at achieving an inclusive and sustainable growth in the EU. The paper investigates the determinants of income inequality in the EU in terms of GDP growth, private sector debt, social benefits, unemployment and tax from low wages. The concerned indicators like low GDP growth as well as high private sector debt, high social benefits, high unemployment and high tax from low wages in terms of austerity measures have been the characteristics of some of the EU countries due mainly to the crisis. To this end, panel data of 27 EU countries for the period of 2004-2014 are employed, where Gini coefficient is the dependent variable. Our analysis points out to social benefits and unemployment as the economic determinants of income inequality in the EU between 2004 and 2014. Income inequality increases as unemployment increases and as social benefits decreases. Yet GDP growth, private sector debt and tax from low wages do not have an impact on income inequality in the EU member states.