Causality between Output and Income Inequality across US States: Evidence from a Heterogeneous Mixed Panel Approach

Shinhye Chang (), Hsiao-Ping Chu (), Rangan Gupta and Stephen Miller
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Shinhye Chang: Department of Economics, University of Pretoria, Pretoria, South Africa
Hsiao-Ping Chu: Department of Business Administration, Ling-Tung University, Taichung, Taiwan

No 201706, Working Papers from University of Pretoria, Department of Economics

Abstract: In this paper, we investigate the causal relationship between output, proxied by personal income, and income inequality in a panel data of 48 states from 1929 to 2012. We employ the causality methodology proposed by Emirmahmutoglu and Kose (2011), as it incorporates possible slope heterogeneity and cross-sectional dependence in a multivariate panel. Evidence of bi-directional causal relationship exists for several inequality measures -- the Atkinson Index, Gini Coefficient, the Relative Mean Deviation, Theil’s entropy Index and Top 10% -- but no evidence of the causal relationship for the Top 1% measure. Also, this paper finds state-specific causal relationships between personal income and inequality.

Keywords: Income inequality; Panel data; Personal Income; Granger causality (search for similar items in EconPapers)
JEL-codes: C33 D31 D63 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2017-01
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Working Paper: Causality between Output and Income Inequality across U.S. States: Evidence from a Heterogeneous Mixed Panel Approach (2018)
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