Top 1% and inequality connectedness in the EMU and WB

Abstract

This study analyzes the connectedness of income inequality, governance, and key macroeconomic factors in the European Economic and Monetary Union (EMU) and Western Balkans (WB). Using data from 2006 to 2019, we measure spillover connectedness in the economies due to shocks to (a) inequality, (b) governance, and (c) key macroeconomic factors. Contrary to assumptions, the top 1% and government effectiveness are big contagion transmitters poised to wreak havoc on the WB and the EMU. Our novel findings indicate that the EU has to immediately assist the WB in stabilizing the inequality since the dangerous and growing inequality is a historical violent shock for the WB and the EMU.