Income Inequality Relationship Research Articles

Does Institutional Setting Contribute to the Public Debt — Income Inequality Relationship in Developing Economies?

In the context of increasing globalization, income inequality is one severe problem in several countries because it widens the income gap between the rich and the poor, which leads to social instability. Narrowing this gap has become one of the main agendas in many developing countries to satisfy the millennium goals proposed by the United Nations. Meanwhile, government expenditure is one crucial fiscal instrument as it contributes significantly to running the economy and overcoming economic cyclicality. In particular, governance/institutional can positively adjust the public debt — income inequality relationship in developing economies. The purpose of the study to identify the impact of institutional quality, public debt and their interaction on income inequality on a balanced data panel of 34 developing economies for the period 2002–2020. For monitoring endogenous problems and serial autocorrelation in empirical equations, two-step and one-step system GMM (Generalized Method of Moments) assessments are used. The results from the study show that public debt and the quality of institutions increase income inequality, but their interaction narrows it. These results seem to be counter-intuitive. Besides, education enhances income inequality in these economies. The results of the study provide some policy recommendations for reducing the inequalities in society through public debt and the quality of institutions in developing economies. Accordingly, governments in developing economies should use spending financed by public debt to support low-income individuals through social transfers throughout economic development. Importantly, they should spend more on education and health to help the poor improve their skills and knowledge, narrowing the income difference between the rich and the poor. In particular, they should be prudent in controlling and managing public debt to avoid a public debt crisis and social instability.

Exploring the Fiscal policy—income inequality relationship with Bayesian model averaging analysis

The authors have employed several techniques to account for model uncertainty in the inequality-growth model. However, the BMA technique is the most prominent approach that solves model uncertainty in the inequality-growth literature. This study applied a recent BMA analysis using panel data to examine the role of fiscal policy on income inequality in 37 OECD countries from 2000 to 2015. Fiscal policy (in terms of tax revenue increase) serves as a redistributive tool or instrument to transfer income from higher income earners to lower earners and is considered a mechanism for income equality. To the best of the author’s knowledge, only a few empirical growth studies have considered fiscal policy impact in their income inequality model setup. Our work contributes to very little research on the fiscal policy–income nexus using a novel BMA and MCMC regression as a robust methodology. Our empirical evidence on the role of fiscal policy on income inequality has found three variables, namely, economic growth, fiscal policy, and urban population, to impact income inequality significantly. We also found that the countries are conditionally neither converging nor diverging because of the probability of their coefficient being high at 100%. As expected, the coefficient of fiscal policy has a significant negative relationship with income inequality, indicating that fiscal policy reduces income inequality significantly by an average of 22% (with 100% certainty) for both BMA and Bayes models in OECD countries.

Income inequality among peers in China: Does internet penetration have a role?

AbstractIn the Internet age, income inequality within peer groups has raised attention. We examine the effect of Internet penetration on peer income inequality and investigate whether the Internet penetration and peer income inequality relationship can be reinforced by human capital. Using a combination of macro and microdatabases of China over the period 2010–2018, we find that peer income inequality in China generally follows a downward trend from 2010. In addition, we show that Internet penetration significantly reduces peer income inequality. Internet penetration has a negative effect on peer income inequality among those under 40 years old, while the effect is reversed among those aged 40–60. Furthermore, human capital can reinforce the links between Internet penetration and peer income inequality. Our results confirm that a mixed indicator of Internet penetration and human capital investment should be part of an active economic policy aimed at reducing peer income inequality.

The role of digitalization in the FDI – income inequality relationship in developed and developing countries

PurposeThe study aims to use individuals using the internet and fixed broadband subscriptions as a proxy for digitalization to empirically assess the effects of Foreign Direct Investment (FDI), digitalization and their interaction on income inequality in developed and developing countries from 2002 to 2019.Design/methodology/approachThe paper used the system general method of moments estimators for 30 developed and 35 developing countries.FindingsFDI increases income inequality in developed countries but decreases it in developing countries, digitalization reduces income inequality in both groups and interaction term narrows income inequality in developed countries but widens it in developing countries.Originality/valueThe paper is the first to introduce digitalization into the FDI – income inequality relationship. Furthermore, it provides empirical evidence to show the difference in the role of digitalization in this relationship between developed and developing countries.

Tax and foreign exchange factors of inequality (To posing a problem)

The high level of income inequality of the population is a long-term problem in the world. The pandemic of 2020 and the growth of geopolitical tensions in 2022 increase the urgency of finding its solution. Inequality is a multifaceted phenomenon determined by various factors — from differences in the structure of economies to the specifics of the mentality and traditions of a particular state. As a result, there are no unified approaches to reducing inequality. This article analyzes the relationship of income inequality in Russia with the parametersof fiscal policy and the ruble exchange rate at different stages of economic development. It is shown that in certain periods taxes are connected differentlywith income inequality of the population in Russia. The important role of social spending in its reducing is shown; such dependence may be explained by the ruble exchange rate and its linkages with the budget policy. The article is setting stage for further analysis of the problem.

Does Digitalization Widen Income Inequality? A Comparative Assessment for Advanced and Developing Economies

Abstract The paper raises two questions: (1) Does digitalization contribute to wealth and income inequality? (2) Does it affect inequality differently between advanced and developing economies? For the answers, the paper investigates the impact of digitalization on inequality for a balanced panel dataset of advanced economies and a balanced panel dataset of developing economies from 2002 through 2020. It applies the system-GMM and PMG estimators for estimation and robustness check. Some exciting results it provides. First, digitalization narrows inequality in developed economies and widens in developing economies. Second, the economic growth – income inequality relationship is U-shaped as real GDP per capita increases from low (developing economies) to high (advanced economies). Third, unemployment enhances inequality in two groups. The results note some necessary implications to develop digital technology and reduce income inequality in these economies.

The impact of fossil fuel subsidies on income inequality: accounting for the interactive roles of corruption and economic uncertainty

PurposeThe aim of this empirical study is to examine the determinants of income inequality with particular concentration on the impact of fossil fuel subsidies, while controlling for corruption, economic uncertainty and democratisation in developing nations.Design/methodology/approachGeneralised method of moments (GMM) is the principal method used in this study due to time and cross-sectional dimensions of the series under observation. Augmented mean group (AMG) method has been used as an alternative estimator.FindingsThe results revealed that increase in fossil fuel subsidies causes greater income inequality. The results indicate that corruption and uncertainty aggravate the impact of fossil fuel subsidies on inequality. The results are not materially different when an alternative estimation technique is used to estimate the regressions.Research limitations/implicationsThis study uses data for 31 developing countries. So, with availability of more datasets in the future, further studies can include more countries in their analyses.Practical implicationsPrice reforms resulting in a major decrease in the fossil fuel subsidies is needed in these developing countries. The authorities must ensure that fiscal savings, structural adjustment and enhanced efficiency in production resulting from energy price reforms serve as catalyst to promote income distribution in these countries.Originality/valueThe author’s first addition to the literature is that the study has concentrated on the fossil fuel subsidies and income inequality relationship, which has not been sufficiently treated in the existing literature. Without adequately knowing the key factors determining income inequality, it may be difficult to use appropriate programmes that will safeguard appropriate income distribution.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-11-2021-0675

AN EXPLORATION OF THE RELATIONSHIP BETWEEN THE QUALITY OF PUBLIC GOVERNANCE AND INCOME INEQUALITY: A CASE STUDY OF VIETNAM

Public governance and income inequality relationship is complex and debatable. This paper examines the extent to which the quality of local governance affects inequality in Vietnam spanning the 2006–2016 period. I apply a generalized method of moments (GMM) estimators to a dynamic panel data extracted from the Vietnam’s provincial competitiveness index and the Vietnam household living standard surveys. The findings are that there is a positive inequality — corruption link but no statistically significant correlation coefficient between the overall level of governance and income disparity. The study, therefore, suggests that the Vietnamese Government at all levels should consider both more effective legal practices and economic low-cost solutions to mitigate corruption.

Trade integration and research and development investment as a proxy for idiosyncratic risk in the cross-section of stock returns

Although consumption-based asset pricing constitutes a solid body of work for the purpose of relating asset prices and macroeconomics, most empirical tests put into question the representative investor perspective. Furthermore, most approaches accounting for untraded risks, such as the Constantinides-Duffie model, face the problem of correctly quantifying idiosyncratic risk. In this paper we exploit the strong relationship of income inequality with trade openness and research and development (R&D) investment to proxy the cross-sectional variance of consumption growth by the growth rate of imports plus exports (trade openness) and the growth of the domestic expenditure in R&D. Moreover, we use these variables as a part of the information set used by investors to determine the unconditional version of the conditional consumption-capital asset pricing model (CCAPM). Our results show that both trade openness and R&D investment allow the linearized version of the Constantinides-Duffie model and the conditional CCAPM to greatly outperform the classic CCAPM for different sorts of stock portfolios, contributing significantly to reducing pricing errors. Hence, our results constitute a step forward in the attempt to relate asset prices and income inequality in a tractable way.

The difference in the FDI inflows – Income inequality relationship between developed and developing countries

Foreign direct investment (FDI) plays a crucial role in the fight against poverty and income inequality in countries worldwide. How does the governance environment decisively contribute to the difference in the FDI – income inequality relationship between developed and developing countries? To answer this question, the study empirically assesses the effect of FDI on income inequality for a group of 24 developed countries with the good governance environment and a group of 37 developing countries with the poor one from 2005 to 2018 using the two-step system GMM Arellano-Bond estimator. The estimated results indicate some interesting findings. First, FDI increases income inequality in developed countries but reduces it in developing countries. Second, in both groups of countries governance and education narrow income inequality while economic growth widens it. In particular, the robustness of estimates is checked by the PMG estimator. These findings suggest some policy implications for central governments about policies and regulations relating to the fight against income inequality.

Financial Development and Income Inequality Relationship: Analyzing Financial Kuznets Curve with ARDL Boundary Test in Turkey

In this study, the relationship between the financial development and the income inequality in Turkey is investigated by testing the validity of Financial Kuznets Curve Hypothesis. To examine this relationship for the period of 1987 2017, the variables of the public final consumption expenditures, the modern sector share, the inflation and the human capitalare also added to the model setted as control variables, and the long term relationships among the variables are analyzed by using the ARDL (The Autoregressive Distributed Lag) Boundary Test approach. Empirical evidence refers to the validity of the Financial Kuznets Curve Hypothesis in Turkey, in other words, there is an inverse U shaped relationship between the financial development and the income inequality. Accordingly, while the financial development raises the inequality in income distribution to a certain threshold level, it reduces the inequality after this threshold level in Turkey. Moreover, in the long run increases in the modern sector share, the public final consumption expenditures and in the trade openness help to reducing income inequality but increases in the inflation and in the human capital make worse income inequality. Keywords: Financial Development, Income Inequality, Financial Kuznets Curve, ARDL Boundary Test. DOI: 10.7176/JSTR/7-01-07

A causality test between income, inequality and poverty – empirical evidence from South-East Asia

ABSTRACT The income–inequality relationship is often addressed in the literature and studies also reporting significant effects between income and the various measures of inequality. An important question is whether there is not only correlation but also causality in the income–inequality nexus. For investigating the latter purpose, a Granger causality test based on out-of-sample forecast errors is applied with data from 2006 to 2018 for per capita real income, Gini coefficients and poverty rates for sixty-one provinces in Vietnam. In this case, there is not detected any significant effects from inequality (Gini) or the level of poverty rates to income – and likewise no evidence of the reverse causality.

Meditation for level of institutional quality to combat income inequality through financial development

AbstractInstitutional role to perpetuate the relationship between financial development and income inequality has significant importance from policy perspectives. The broadening income inequality and its procurement through financial sector is attracting the worldwide attention of researchers now days. This study is an attempt to investigate the relationship of income inequality and financial development varying with level of institutional quality. To this end, unbalanced panel data set for 124 countries covering the time span 1990–2015 is used applying the instrumental variable threshold regression approach. The estimated results highlight that embedded efficient institutional framework of a country assures more income equality with financial development. Moreover, GDP growth increases the income inequality if institutional quality is below the threshold level while educational attainment is a major factor to decrease it. In respect of policy implications, financial sector may be fruity to overcome income inequality if policy makers bring the level of institutional quality up to threshold level of that country.

State-Level Income Inequality and County-Level Social Capital in Relation to Individual-Level Depression in Middle-Aged Adults: A Lagged Multilevel Study.

In the US, the incidence of depression and suicide have followed escalating trends over the past several years. These trends call for greater efforts towards identifying their underlying drivers and finding effective prevention strategies and treatments. One social determinant of health that plausibly influences the risk of depression is income inequality, the gap between the rich and poor. However, research on this association is still sparse. We used data from the National Longitudinal Survey of Youth 1979 and the US Census to investigate the multilevel lagged associations of state-level income inequality with the individual-level odds of depression in middle-aged adults, controlling for state- and individual-level factors. We also examined the independent associations of county-level social capital with depression and explored whether it mediated the income inequality relationship. Higher income inequality at the state level predicted higher odds of individual-level depression nearly 2 decades later [OR for middle vs. lowest tertile of income inequality = 1.35 (95% CI: 1.02, 1.76), OR for highest vs. lowest tertile = 1.34 (95% CI: 1.01, 1.78)]. This association was stronger among men than women. Furthermore, there was evidence that county-level social capital independently predicted depression and that it mediated the income inequality association. Overall, our findings suggest that policies attenuating levels of income inequality at the US state level and that leverage social capital may protect against one’s likelihood of developing depression.

The Uncertainty of Academic Rent and Income Inequality: The OECD Panel Evidence

:The article presents an alternative view on the education—income inequality relationship, which calls into question the neoclassical claim that education increases labor productivity and hence contributes to a higher output, wage and consequently more even income distribution. In the context of public policies, education needs to be seen not only as a factor of income mobility, but also as a “positional good,” which benefits graduates at the expense of non-graduates. Education generates “academic rent,” by which we mean uneven remuneration of workers based on academic signs of distinctions that do not necessarily reflect differences in productivity. Using the robust panel model on a sample of OECD (Organization of Economic Co-operation and Development) countries from 1980 to 2015, we show that investments in human capital lead to lower inequality, but overinvestments tends to increase income inequality, which may be related to academic rent. In discussing this result, we consider that uncertainty of academic rent under the condition of a rapid transformation of the workplace caused by the fourth industrial revolution.

Health, inequality and income: a global study using simultaneous model

A simultaneous three-equation model is specified between GDP per capita (GDPc) level, infant mortality rate and health expenditures for 194 countries from 1990 to 2014. GMM-2SLS estimation results indicate that simultaneous decreasing infant mortality rate and increasing GDPc level effects are found in sample with three income level country groups. Health expenditures have larger than one elasticity when effects from GDPc level and number of doctors per capita are summed together. Increase in income inequality measured with GINI coefficient increases infant mortality rate in non-poor countries. We test for Kuznets’ hypothesis maintaining a positive GDPc level income inequality relationship in poor countries contrary to rich ones. Kuznets’ hypothesis is not rejected for poor countries with proposed ∩-shaped GDPc function on GINI that also identifies the negative income inequality effects on GDPc growth. In poorest countries, the possible Kuznets’ hypothesis and involved low-income high-inequality trap can be eliminated by raising health expenditures– GDPratio and with cost-effective health technology. Breaking the possible negative relationship between income inequality and health status in these countries makes health promotion policy and positive income–health path to develop smoothly.

Income Inequality, Life Satisfaction Inequality and Trust: A Cross Country Panel Analysis

Literature has argued that income inequality crowds out trust. However, whether income inequality makes people less trusting depends on how they perceive income inequality within their personal social context and social cognition. In this paper we therefore conjecture that the relationship of income inequality to trust depends on how income inequality affects inequality of life satisfaction. If life satisfaction inequality is high, distrust is generated among the least happy. This will increase polarization and the risk of rebellion, thereby also affecting trust among the happier people. Thus, life satisfaction inequality may be an essential factor in the relationship between income inequality and trust. In previous literature, the potential mediating role of life satisfaction inequality in the relationship between income inequality and social trust has not yet received attention. We test our model by panel analysis on 25 OECD countries in the period 1990–2014. The panel analysis shows that income inequality increases life satisfaction inequality and that both income inequality and life satisfaction inequality have a significant negative impact on social trust. Mediation tests show complementary mediation: besides the direct negative effect of income inequality on trust, we find an indirect effect mediated by life satisfaction inequality. This indirect effect counts for 20% of the total effect of income inequality on trust. Our results imply that policy options for increasing trust are not limited to countering income inequality, but can also include policy measures that directly reduce inequality of life satisfaction.

The relation and development of expenditure inequality and income inequality of Czech households

The paper focuses on an analysis of income inequality and expenditure inequality of households in the Czech Republic for the period 2001 - 2009, based on data from the Statistics of Family Accounts. The basic methodological tool is the Gini coefficient and its decomposition according to individual categories of consumer expenditure. The conducted research reaches the conclusion that income inequality is higher than inequality in consumer expenditure, and income inequality for the analyzed period is growing at a higher rate than expenditure inequality. Tax-transfer tools effectively eliminate income inequality, but nevertheless inequality of disposable income exceeds the inequality of net monetary expenditure. As regards the mutual relationship of income inequality and expenditure inequality, expenditure inequality within a period of economic growth and boom copied the course of income inequality, while within a period of economic decline and recession both inequalities showed a completely different development. The main determinant affecting income inequality may be considered to be non-consumer expenditure, particularly expenditure for the acquisition of real estate.

Economic Growth and Income Inequality Relationship: Role of Credit Market Imperfection

The 20th century has witnessed unequalled success in improving the living standard of people in most part of the world. According to World Bank annual Statistical reports, poverty has declined significantly in developing countries over the past twenty years but the progress has been uneven. The number of people living in poverty fell from 1.5 billion in 1981 to 1.1 billion in 2001. However, many low-income developing countries are still trapped in vicious circle of poverty. In Sub-Saharan Africa, the number of poor rose from 41 percent to 46 percent between 1981 to 2001.While in Eastern Europe and Central Asia, the numbers of poor people have risen to around 20 percent in 2001.1 Therefore; reduction of widely scattered poverty is the most challenging goal for low income developing countries. Economic growth is considered to be a powerful force for reducing poverty. High and sustained economic growth increases the labor demand and wages which in return will reduce poverty. Similarly, better earnings as a result of reduction in poverty lead to increase productivity and growth. But the extent of poverty reduction as a result of economic growth depends on how the distribution of income changes with economic growth and on initial Inequalities in income. If income inequality increases, then economic growth does not lead to a significant poverty reduction. Many developing countries achieved high growth rates in different periods but poverty does not reduce significantly in these periods due to increase in income inequalities. Most South and East Asian economies grew at higher per capita rates since early 1970 along with rise in income inequality over time. In contrast, Latin American countries grew by less than the half of average growth rates in South and East Asia while maintaining high income inequality.2 The differences in income inequality at a given rate of growth require that efforts to reduce poverty by stimulating growth are not sufficient and need to be complemented by efforts to reduce income inequalities.

Income Inequality, Global Economy and the State

We investigate interrelationship among income inequality, global economy and the role of the state using an unbalanced panel data set with 311 observations on 60 countries, dated from 1970 to 1994. The analysis proceeds in two stages. First, we test for effects on income inequality of variables characterizing the situation of a society in the world system: world system position (core, semi-periphery, periphery), foreign trade structure, export commodity concentration, export partner concentration and size of the state (measured as government expenditure or revenue). Second, we analyze the role of the interaction between foreign direct investment and government size in the inverted-U shaped relationship of income inequality with foreign investment. We find that most traditional measures of trade dependence have inconsistent or weak positive effects on inequality, while export commodity concentration has a negative effect. We also find that the effects of foreign direct investment on inequality is positive at low to intermediate levels of government size, but that this effect is substantially attenuated or negative in societies with a larger public sector. We conclude that distributional outcomes are dependent upon how the state reacts to growing globalization-related pressures.