Towards Achieving the Sustainable Development Goals (SDGs): The Impact of Debts on Income Inequality in Africa

Abstract

The Agenda for Sustainable Development provides a framework for the creation of a better and sustainable future for all. The Sustainable Development Goals (SDGs) focus on addressing global challenges, including income inequality. Among others, the SDGs also commit countries to work towards reducing income inequality and as such, lowering income inequality is one of the key issues in Africa. However, given the high levels of debt on the continent, reducing income inequality could be a challenge. Majority of the literature examines the link between debts and economic growth with little attention paid to the impact of debts on income inequality. Moreover, not much is known on whether the relationship between debt and income inequality is non–linear. This study therefore contributes to the existing research efforts by investigating the threshold effects of debts using data from 24 African countries by relying on the sample splitting and threshold estimation approach. The results reveal that, while debts generally dampen income inequality, unbridled debt accumulation above the estimated thresholds does not decrease income inequality, indicating that the income inequality–reducing impact holds at lower levels of debt–to–GDP ratio. This evidence is insensitive to different indicators of income inequality and debts. Findings from this study show how increasing indebtedness contributes to widening income inequality in Africa.