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The heterogeneous relationship between income and inequality: a panel co-integration approach

Svenja Flechtner () and Claudius Gräbner ()
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Svenja Flechtner: University of Siegen
Claudius Gräbner: Johannes Kepler University Linz and University of Duisburg-Essen

Authors registered in the RePEc Author Service: Claudius Gräbner ()

Economics Bulletin, 2019, vol. 39, issue 4, 2540-2549

Abstract: We study the relationship between per-capita income and income inequality with a heterogeneous panel co-integration approach. We extend previous studies in two respects: first, we compile a more extensive data set for 87 countries over 26-58 years and consider measures for both pre-tax and post-tax income inequality; second, we take into account country heterogeneity rather than focussing on average panel estimates alone. We find a statistically significant positive group-mean based relationship using pre-tax income inequality, but no such relationship for post-tax income inequality. However, we find estimates on the country level to be very heterogeneous in both cases. Both empirical findings invite further research: by laying out relevant empirical patterns using a robust methodology, our contribution is meant as a vantage point for further theoretical work geared towards understanding the mechanisms underlying these findings.

Keywords: Inequality; panel co-integration; aggregated income; GDP per capita; growth (search for similar items in EconPapers)
JEL-codes: O1 F5 (search for similar items in EconPapers)
Date: 2019-11-12
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