Measures Of Income Inequality Research Articles

The Impact of Restrictive Macroprudential Policies through Borrower-Targeted Instruments on Income Inequality: Evidence from a Bayesian Approach

This study used the panel data from 15 emerging markets to examine the impact of restrictive macroprudential policies on income inequality from 2000–2019 using Bayesian panel vector autoregression and Bayesian panel dynamics generalised method of moments models. The chosen models are suitable for addressing multiple entity dynamics, accommodating a wide range of variables, handling dense parameterisation, and optimising formativeness and heterogeneous individual-specific factors. The empirical analysis utilised various macroprudential policy proxies and income inequality measures. The results show that when the central banks tighten systems using macroprudential policy instruments to sticker debt-to-income and financial instruments for lower-income borrowers (the bottom 40% of the income distribution), they promote income inequality in these countries while reducing income inequality for high-income borrowers (the high 1 percent of the income distribution). The impact of loan-to-value ratios was found to be insignificant in these countries. Fiscal policy through government expenditure and economic development reduces income inequality, while money supply and oil-price shocks exacerbate it. The study suggests implementing a progressive debt-to-income (DTI) ratio system in emerging markets to address income inequality among lower-income borrowers. This would adjust DTI thresholds based on income brackets, allowing lenient credit access for lower-income borrowers while maintaining stricter limits for higher-income borrowers. This would improve financial stability and reduce income disparities. Additionally, targeted financial literacy programs and a petroleum-linked basic income program could be implemented to distribute oil revenue to lower-income households. A monetary supply stabilisation fund could also be established to maintain financial stability and prevent excessive inflation.

Assessing the Reliability and Calibration of the Gini Coefficient

This research paper delves into the Gini Coefficient, a widely used statistical measure of income inequality. We assess the accuracy and reliability of this tool by examining its strengths, such as its simplicity and applicability across countries, alongside its limitations, including sensitivity to data variations and contextual differences. The paper explores how the Gini Coefficient is utilized in economics and policy analysis, providing a balanced view of its advantages and drawbacks, ultimately evaluating its effectiveness in capturing the complexities of income distribution.

Social trust and COVID-19 mortality in the United States: lessons in planning for future pandemics using data from the general social survey

BackgroundThe United States has lost many lives to COVID-19. The role of social capital and collective action has been previously explored in the context of COVID-19. The current study specifically investigates the role of social trust at the county level and COVID-19 mortality in the US, hypothesizing that counties with higher social trust will have lower COVID-19 mortality rates.MethodsWe used cross-sectional data from the General Social Survey (GSS). We collected COVID-19 mortality data from the COVID-19 Dashboard by the Center for Systems Science and Engineering (CSSE) at Johns Hopkins University until October 31, 2021. We obtained county characteristics from the 2019 American Community Survey and supplemented this data source with additional publicly available county-level data, such as measures of income inequality and political leanings. We measured social trust as a single item from the GSS and calculated mean social trust in a county by pooling responses from 2002 to 2018. We then modeled the relationship between mean social trust and COVID-19 mortality.ResultsResults indicate that counties with higher social trust have lower COVID-19 mortality rates. Higher values of mean social trust at the county level are associated with a decrease in COVID-19 mortality (b= -0.25, p-value < 0.001), after adjustment for confounding. The direction of association is consistent in a sensitivity analysis.ConclusionsOur findings underscore the importance of investment in social capital and social trust. We believe these findings can be applied beyond the COVID-19 pandemic, as they demonstrate the potential for social trust as a method for emergency preparedness.

The distributional effects of climate change. An empirical analysis

The role of climate change on output has been studied extensively in the empirical literature. However, its distributional implications have received little attention. This paper attempts to fill this gap by investigating if climate shocks affect income inequality. Using a Vector Autoregression for a large cross-country panel, we identify the climate shock in the frequency domain as the shock that explains the bulk of the variance of climate variables in the long-run. An adverse climate shock is associated with an increase in measures of income inequality, affecting mostly low income households. The impact of the shock is larger in magnitude for low income, hot countries with a significant agricultural sector and low degree of adaptation to climate change.

Inequality Bands: Seventy-five years of measuring income inequality in Latin America

Abstract Drawing on a comprehensive compilation of quantile shares and inequality measures for 34 countries, including over 5600 estimated Gini coefficients, we review the measurement of income inequality in Latin America and the Caribbean over the last seven decades. We find that there is quite a bit of uncertainty regarding inequality levels for the same country/year combinations. Differences in inequality levels estimated from household surveys alone are present but they derive from differences in the construction of the welfare indicator, the unit of analysis, or the treatment of the data. With harmonized household surveys, the discrepancies are quite small. The range, however, expands significantly when –to correct for undercoverage and underreporting especially at the top of the distribution– inequality estimates come from some combination of surveys and administrative tax data. The range increases even further when survey-based income aggregates are scaled to achieve consistency not only with tax registries but with National Accounts. Since no single method to correct for underreporting at the top is fully convincing at present, we are left with (often wide) ranges, or bands, of inequality as our best summaries of inequality levels. Reassuringly, however, the dynamic patterns are generally robust across the bands. Although the evidence roughly until the 1970s is too fragmentary and difficult to compare, clearer patterns emerge for the last fifty years. The main feature is a broad inverted U curve, with inequality rising in most countries prior to and often during the 1990s, and falling during the early 21st century, at least until around 2015, when trends appear to diverge across countries. This pattern is broadly robust but features considerable variation in timing and magnitude depending on the country.

New technologies and income inequalities into Sub-Saharan Africa: Using a new technological indicator

The studies which analyzed the impact of technology innovation on income inequalities have considered only one factor of change at a time. The results are overall inconclusive: technology innovation appears to either reduce or increase inequality, depending on which factor is considered. In the literature of technological change, there is a technology innovation indicator that comprises multiple factors simultaneously. Using this technology innovation indicator and three different measures of income inequality (Gini index, Atkinson index, and the ratio of Palma), the paper analyzed the effect of technology innovation on income inequalities into Sub-Saharan Africa countries. A dynamic panel model was specified and estimated with the Generalized Moments Method (GMM) in System. The data used come from the Global Consumption and Income Project (GCIP), the World Development Indicator (WDI) and the World Governance Indicator (WGI). They were observed over the period 1996–2014 of 30 Sub-Saharan Africa countries. The paper finds robust evidence that technology innovation contributes to reducing income inequalities into Sub-Saharan Africa countries. The implementation of learning policy through improving education condition associated with social policy can contribute to limit the income inequalities due to technologies change into Sub-Saharan Africa countries.

The role of loan loss provisions in income inequality: Evidence from a sample of banking institutions

This study explores the empirical link between income inequality and banks’ Loan Loss Provisions (LLPs) through a sample of banking institutions from 132 countries, applying a panel regression methodology. The evidence reveals that higher LLPs have a positive impact on income inequality, and the findings remain valid across various model specifications and income inequality measures. The results also hold against various robustness tests, such as different bank sizes, developed vs. emerging countries, the impact of the 2008 global financial crisis, and the controlling for risk. The implications are relevant for stakeholders, including regulators that endeavor to protect banking systems against expected and unexpected losses via LLPs. Specifically, since credit decisions have substantial effects on income inequality, regulators should mitigate the accumulation of LLPs, allowing more funds to be available for other banking system activities and functions.

Fiscal consolidations and income inequality: Evaluating the evidence

What are the effects of fiscal austerity on income inequality? In this paper I estimate the average treatment effect (ATE) of fiscal consolidations quantifying their dynamic impact by means of dose–response functions. Dose–response functions allow the ATEs to vary by the levels of treatment. I find that austerity indeed increases income inequality, however the increases manifest themselves whenever unannounced fiscal measures are relatively low, lower that 0.20% of GDP or relatively high, higher than 2.17% of GDP. For intermediate levels of fiscal measures income inequality does not change. These results hold for various measures of income inequality.

Novel credibility approaches for Lorenz curve and Gini coefficient estimation

The Lorenz curve and Gini coefficient are prominent statistical tools used in various fields to measure income inequality, wealth distribution, and other distributions of resources within a population. However, traditional estimations of Lorenz curve and Gini coefficient often overlook the utilization of prior information, relying solely on sample data. This paper adopts credibility theory principles to propose a novel approach, combining empirical and collective Lorenz curves through weighted estimation. By optimizing these weights under the integral square loss function, the study derives two credibility estimations for the Lorenz curve and Gini coefficient. Asymptotic properties of these estimations are established, and numerical simulations validate the comparison of their small-sample properties with traditional methods.

Contribution of Wildlife-based Tourism to Household Income and Income Inequality: A Case of Burunge Wildlife Management Area in Tanzania

This study investigates the contribution of wildlife-based tourism to household income, employment, and income inequality in villages surrounding Burunge WMA. The study used cross-sectional design, focusing on four villages namely Olasiti, Mwada, Minjingu and Sangaiwe. Primary data collection involved a household survey that covered 272 randomly selected households. The questionnaire addressed issues of household social-economic characteristics, main income-generating activities and tourism-related employment. The study employed the Gini coefficient to measure income inequality. The study reveals that wildlife-based tourism provides income opportunities at household level but its contribution to the overall household income is low because only about 15% of sampled households depended on wildlife-based tourism as their main source of income. Agriculture and livestock activities overshadow tourism-related income sources, contributing to significant income inequality within the tourism sector. Recommendations for enhancing economic impact of wildlife based tourism include awareness creation, supporting existing investors, providing targeted sector support, income distribution and encouraging income source diversification.

Cultivating Quantitative Literacy in the Introductory Course: A Mathematics Education Collaboration to Teach the Gini Coefficient

We report on a cross-disciplinary collaboration between sociology and mathematics education to more effectively cultivate quantitative literacy (QL) in the introductory sociology course. Focusing on an instructional unit presenting the Gini coefficient (the most commonly used summary measure of income inequality), we engaged in iterative cycles of presentation, assessment, and redesign across four semester-long courses. Assessments were guided by insights from mathematics education—such as the procedural/conceptual distinction, student misconceptions, and student noticing—and characterized by extensive informal discussion and analysis of patterns in student exam responses. Assessments were formalized via coding of specific response elements and used to identify strategic foci for revision and redesign (including creating a brief instructional video series and an active learning exercise). In this article, we highlight the value of cross-disciplinary collaboration in QL pedagogy, demonstrate the effectiveness of analyzing specific elements and patterns of student comprehension to revise pedagogical presentation, and advocate for the strategic utility of the Gini coefficient for cultivating QL in introductory sociology.

Measuring income inequality via percentile relativities

The adage “the rich are getting richer” refers to increasingly skewed and heavily-tailed income distributions. For such distributions, the mean is not the best measure of the center, but the classical indices of income inequality, including the celebrated Gini index, are mean based. In view of this, it has been proposed in the literature to incorporate the median into the definition of the Gini index. In the present paper we make a further step in this direction and, to acknowledge the possibility of differing viewpoints, investigate three median-based indices of inequality. These indices overcome past limitations, such as: (1) they do not rely on the mean as the center of, or a reference point for, income distributions, which are skewed, and are getting even more heavily skewed; (2) they are suitable for populations of any degree of tail heaviness, and income distributions are becoming increasingly such; and (3) they are unchanged by, and even discourage, transfers among the rich persons, but they encourage transfers from the rich to the poor, as well as among the poor to alleviate their hardship. We study these indices analytically and numerically using various income distribution models. Real-world applications are showcased using capital incomes from 2001 and 2018 surveys from fifteen European countries.

Towards Efforts to Equalize Income in Africa: The Role of Tourism Development

ABSTRACT A vast literature has investigated the nexus between tourism and income inequality in developing and developed countries. Unfortunately, the literature on the impact of tourism on income inequality in Africa is sparse. Hence, this study examines the influence of tourism on income inequality in 30 African countries over the period 1996–2020. In addition to international tourism arrivals and international tourism receipts which have been widely used by previous studies, this study uses a plethora of tourism indicators, namely business tourism spending, leisure tourism spending, internal travel and tourism consumption, domestic tourism spending, and visitor exports. Moreover, unlike previous studies that have extensively used the Gini index with its inadequacy as a measurement of income inequality; this study uses the Atkinson index and Palma ratio to capture extreme points of the inequality distribution. The empirical evidence is based on the panel-corrected standard error (PCSE) estimation technique. The results reveal that tourism contributes to the equalization of income in Africa, contingent on the type of tourism. Policy implications are discussed.

Socioeconomic inequalities and the role of sectoral foreign aid in developing countries

AbstractUsing a panel threshold regression approach, we consider multiple dimensions of socioeconomic inequalities and examine their heterogeneous relationships with sectoral foreign aid. Conditioned on the level of socioeconomic development, three types of inequality and four channels of sectoral foreign aid are considered. We use a comprehensive dataset covering 65 aid‐recipient countries from 1990 to 2017 and find that education aid effectively reduces inequalities but only when the level of institutional quality and other socioeconomic factors is above its 75th percentile value in our sample. These results are robust to alternative measures of income inequality, aid and estimation strategies.

ASSESSING THE IMPACT OF CORRUPTION ON INCOME INEQUALITY

This article is devoted to the study of the impact of corruption on income distribution. The study reveals statistically significant associations between the level of corruption and income inequality in Kazakhstan by applying least squares linear regression models. The paper uses the Corruption Perception Index as a measure of corruption and the Gini Index as a measure of income inequality. The paper also analyzes the impact of corruption on income inequality in other countries. This made it possible to determine the specifics of such an impact in countries with different levels of economic development. The results of the study showed that a decrease in the level of corruption, expressed as an improvement in the Corruption Perception Index, is associated with a decrease in income inequality, expressed as the Gini Index. The study also found that population growth has high statistical significance and is associated with a significant reduction in the level of social inequality in Kazakhstan. This confirms that population growth is predominantly observed among the less well-off strata of society, which leads to an increase in the Gini coefficient.

Income inequality and carbon emissions in Asia: Does financial inclusion matter?

AbstractThe upsurge in the amount of carbon emissions in Asia has been potentially due to the increasing income disparities in the region. Meanwhile, with the increasing level of digital financial services, the digital approach to financial inclusion could complement the traditional approach. Therefore, we investigate the impact of income inequality on carbon emissions across 17 Asian countries for the period 2011 to 2022. We also investigate the effects of traditional and digital financial inclusions on the relationship between income inequality and CO2 emissions. This study employs the panel fixed‐effect estimator, Quantile regressions, and 2SLS to estimate the model specifications of the study. Findings reveal that income inequality has a positive and significant impact on CO2 emissions in both linear and non‐linear models. Findings also show that both traditional and digital financial inclusion significantly moderate the relationship between income inequality and CO2 emissions, with digital financial inclusion having a lesser impact. The study further finds that economic freedom is the transmission channel through which income inequality impacts CO2 emissions, suggesting that higher income disparities lower economic freedom, which further contributes to the amounts of CO2 emissions. Our findings theoretically support the marginal propensity to emit theory and the environmental Kuznets curve hypothesis. Our findings are robust to alternative measures of income inequality, CO2 emissions, and endogeneity concerns.

DOES INCOME INEQUALITY PROMOTE ECONOMIC GROWTH?

We derive a model in which we show that economic growth is directly affected by a change in marginal propensity to consume. We apply the vector error correction model, results from which show that Gini coefficient – a measure of income inequality – negatively affects marginal propensity to consume. Therefore, we concluded that a rise in income inequality would negatively affect marginal propensity to consume and thereby economic growth in the long-term and the short-term both. The short-term effect will show up with a one-period lag. JEL Classification: E20, E21, E25, O4.

Income Inequality and External Wealth of Nations

Abstract We study the relationship between income inequality and external wealth using dynamic panel data models with 5-years average observations to consider the slow motion of available data in the case of 88 emerging and developing economies for the period 1970–2020. We find evidence of a significant positive association between inequality indicators and net external wealth. This relationship is statistically significant for all income inequality measures and net external wealth variables. If the Top 1 of the richest individuals in a given country increments their share by 1 % point this will produce an average same-year increment in net foreign assets of 0.45 % in terms of the country’s GDP. The long-run effect is more than double in magnitude (1.05 % of GDP). For the Top 10, the long-run effect increases tenfold (11.6 % of GDP). When disaggregated into foreign assets and liabilities, we find a heterogeneous behavior of the financial elites. These findings reveal that financialized elites have a greater propensity to accumulate external wealth than the rest of the population.

Does institutional quality moderate the human capital–inequality dynamics? Comparative evidence from LAC and SSA countries

AbstractAligning with Sustainable Development Goal 10, this study probes whether quality institutions matter in the drive towards reducing income inequality through human capital. An unbalanced panel data on the Gini index (measure of income inequality), human capital index and institutional quality index drawn across 83 Latin America and sub‐Saharan African (SSA) countries from 2010 to 2019 is used. For the most part, the consensus is that the interaction of human capital and quality institutions significantly reduces income inequality. For context, inequality reduces by −7.810 and −21.30 points for the full and SSA samples. Other findings reveal that the interaction effect is consistently negative at upper quantiles. Evidence from the margin plots reveals that the effect of human capital on inequality improves as institutional quality is strengthened. The downward trend of the plot within the 95% confidence interval shows that institutional quality enhances the impact of human capital on income inequality for the full sample and in SSA. This is a novel contribution to the literature as it suggests that quality institutions matter in the drive towards reducing the menace of income inequality. Policy recommendations are discussed.

Structural transformation and inequality: Does trade openness matter?

AbstractThe purpose of this paper is to examine income inequality in the process of economic growth and structural transformation with emphasis on the role of economic openness using a new measure of trade openness (the price convergence index [PCI]), which is an alternative measure to the widely used trade‐to‐GDP ratio. The analysis is based on a multi‐country panel data covering 48 countries for the period from 1960 to 2010. The results suggest that an increase in the share of employment in manufacturing is associated with a reduction in income inequality. This inequality‐reducing effect is significantly greater for countries with more open trade regimes. In addition, the Kuznets‐type relationship exists between services employment share and income inequality, with inequality first increasing with the movement of workers from agriculture to services and then decreasing. This inequality‐increasing effect of services employment share is also larger for countries with more open trade regimes. The findings withstand the inclusion of relevant explanatory variables, an alternative measure of income inequality, and alternative estimator to address possible endogeneity.