Dynamic and Asymmetric Response of Inequality to Income Volatility: The Case of the United Kingdom
Goodness Aye (),
Giray Gözgör () and
Rangan Gupta ()
Additional contact information
Goodness Aye: Department of Economics, University of Pretoria, Pretoria, South Africa
No 201821, Working Papers from University of Pretoria, Department of Economics
Using the quarterly data of the United Kingdom (UK) for the period from 1975Q1 to 2016Q1, the paper analyses the dynamic and the asymmetric responses of inequality to the real gross domestic product (GDP) (income) volatility. For this purpose, we consider the bivariate Generalized Autoregressive Conditional Heteroskedasticity-in-mean (GARCH-M) Structural Vector Autoregressive (VAR) based models to examine the related relationship. Applying this method to the different measures of both income- and consumption inequality (i.e. the measures of the Gini, the standard deviation, and the 90-10 percentile differential), we find that income volatility has an increasing effect on inequality. Not only the real GDP volatility significantly increases inequality, but also its effect is asymmetric. In other words, inequality differently responds to the positive and the negative income growth volatility shocks. Moreover, the volatility in the GDP-inequality equation tends to amplify the positive dynamic response of inequality to a positive income shock, while diminishing the response of inequality to a negative income shock. The implications of these findings are also drawn.
Keywords: Inequality; income volatility; asymmetric shocks; impulse-response functions (search for similar items in EconPapers)
JEL-codes: C32 O11 O47 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:201821
Access Statistics for this paper
More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().