Economic Policy Uncertainty and Income Inequality across Europe

Don Bredin (), Stilianos Fountas and Paraskevi Tzika ()
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Don Bredin: University College Dublin
Paraskevi Tzika: Swansea University, UK

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: This paper investigates the impact of Economic Policy Uncertainty (EPU) on income inequality across a broad set of European countries from 1995 to 2022, with a particular focus on the core-periphery divide. Applying both time series and panel data methodologies—including Vector Autoregressions (VAR), panel VAR, and local projections—we assess how economic uncertainty influences inequality dynamics. Our findings reveal three key insights. First, uncertainty shocks significantly affect income inequality in nearly all countries, and the effect is time-varying. Second, the effect is heterogenous across countries but varies: uncertainty tends to reduce inequality in core European countries such as Belgium, Germany, Ireland, and the Netherlands, while mainly increasing it in periphery and intermediate countries like France, Greece, Italy, and Spain. Third, panel analysis confirms this asymmetry, showing more persistent and positive inequality effects in periphery countries. These results suggest that income inequality in Europe’s periphery is more vulnerable to economic uncertainty, underscoring the importance of stable policy environments and targeted fiscal responses.

Keywords: economic uncertainty; income inequality; VAR models; rolling impulse response functions; panel LP (search for similar items in EconPapers)
JEL-codes: C32 D3 D8 E32 (search for similar items in EconPapers)
Date: 2026-05, Revised 2026-05
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Persistent link: https://EconPapers.repec.org/RePEc:mcd:mcddps:2026_05

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