Income inequality,corruption and subjective well-being

ABSTRACT

Based on the data of CGSS2013, we analyse the relationship between income inequality, corruption and subjective well being using an Ordered Probit model. Our results indicate that income inequality and corruption significantly reduces the subjective well-being of our country’s residents. Furthermore, corruption is an important channel for the negative effect of income inequality on subjective well-being, the impact of income inequality on subjective well-being is mainly achieved by the role of corruption. Specifically, the impacts vary according to hukou. Higher degree of income inequality indeed reduces the subjective well-being of urban residents, while it has a positive effect on subjective well-being of rural residents. Corruption has a significant negative impact on the subjective well-being of urban and rural residents. There is heterogeneity in the influence of different income levels in rural areas. The study in this paper shows that anti-corruption and narrowing the income gap are the two major grippers to improve the well-being of the residents.     

Relationships between corruption,political orientation,and income inequality: evidence from Latin America

This research sheds light on the analysis of the impact of corruption and political orientation on income distribution in Latin America. Although it has been theoretically demonstrated that corruption worsens the income distribution, the empirical evidence has yielded ambiguous results based on biased estimates not considering a measurement error in the estimation of inequality. This article fills this gap by correcting the previous measurement error bias in the fixed-effects estimation. Additionally, political orientation and its relationship with income inequality are also investigated. The sample covers 18 Latin American countries between 1996 and 2012. Results reveal that corruption increases income inequality.     

Finance,income inequality and income redistribution

Using a panel fixed effects model for a large sample of countries covering 1975–2005, we test the hypothesis that income inequality caused by finance (financial development, financial liberalization and banking crises) is related to more income redistribution than inequality caused by other factors. Our results provide evidence in support of this hypothesis. We also find that the impact of inequality on redistribution is conditioned by ethno-linguistic fractionalization. Our findings are robust to the inclusion of several control variables suggested by previous studies.     

Status-seeking behavior,the evolution of income inequality,and growth

Using an overlapping generations model, this paper investigates the implications of status-seeking behavior, induced by preferences for relative income, for the evolution of income inequality. When average income rises, an individual’s marginal utility of their own income may increase (keeping up with the Joneses, or KUJ), or decrease (running away from the Joneses, or RAJ). It is shown that income inequality is shrinking over time in the KUJ economy, whereas it is expanding in the RAJ economy. We also explore the implications for long-run growth and inequality, in the existence of both KUJ and RAJ agents. I am truly grateful to Koichi Futagami for his encouragement and guidance in writing this paper. I have benefitted from comments by an anonymous referee, Been-Lon Chen, Giacomo Corneo, Akiomi Kitagawa, Kazuo Mino, Kazuhiro Yuki, and seminar participants at Osaka University, the 2006 Japanese Economic Association Autumn Meeting at Osaka City University, the Far Eastern Meeting of Econometric Society 2007 at Taipei, SER Conference 2007 at Singapore, and the European Meeting of Econometric Society 2007 at Budapest. All remaining errors are, of course, my own. The financial support from JSPS Research Fellowships for Young Scientists is greatly acknowledged.     

Redistribution,trade and corruption: an empirical assessment

ABSTRACT

This article explores the role of institutional quality in the trade and inequality nexus. Does corruption shape the relationship between trade and inequality through its impact on redistribution? Our answer to this question builds on the hypothesis that trade raises inequality and that governments may want to intervene through appropriate redistribution schemes that aim at taxing the gains from trade in a way that offsets the negative effects of trade on inequality. Moreover, we argue that this mechanism may be distorted by corruption and bad institutions in general. Quite to the contrary to common wisdom, we find that trade reduces inequality in countries with high institutional standards by means of a low level of corruption but increases inequality in countries with low levels of institutional quality.     

我国收入不平等、金融发展和消费需求波动的实证研究:1978～2001

本文考察了收入不平等与总消费需求变动之间的联系,在高收入地区,不平等程度越大似乎消费需求波动越大,而在低收入地区,收入不平等越大,消费需求波动反而较小。本文找到证据表明金融发展水平能有助于解释为什么收入分配在高收入和低收入地区中影响消费需求的短期波动是不同的,本文的政策含义是,加快低收入地区如中西部的经济和金融发展步伐,加大金融发展相机调整的力度。     

A panel analysis of income inequality and energy use

This paper investigates the relationship between energy consumption and income inequality in an unbalanced panel of 144 countries over the period 1990–2018. Using fixed effect and instrumental variable panel methods and controlling for other determinants of inequality, I find a large and strong negative relationship between energy use and income inequality. The paper also demonstrates that results hold for models which divide the total sample into subsamples of economic blocs and regions. In addition, greater energy use reduces the income share of the top 10% and increases the share of the bottom 40%.     

Persistence and determinants of income inequality: The Brazilian case

Latin America, which is a region known for its high and persistent income inequality levels, experienced a significant decline in income inequality since the second half of the 1990s. Brazil is a particularly interesting case in Latin America. While the country presented notable economic growth and improvements in income distribution in the early 2000s, Brazil continues to experience high levels of income inequality in comparison with other Latin American or advanced economies. This research contributes to the literature by examining the key drivers of income distribution and the degree of persistence of income inequality among Brazilian states. This research also improves upon previous works by using more recent and comprehensive data and addressing concerns regarding heterogeneity and endogeneity by using the system GMM estimation method. Our findings show that income inequality is highly persistent across Brazilian states and that government policies including income transfer programs made important contributions to reduce income inequality in Brazil. This study also shows that the decline in labor income ratios between different ethnic groups and the increase of the share of formal jobs in the labor market contributed to reduce income inequality.     

Poverty decompositions with counterfactual income and inequality dynamics

Traditional poverty accounting decomposes changes in a country's poverty headcount ratio into changes in income and inequality. We argue that this approach is unsatisfactory from the perspective of policy analysis because it compares a country in two points of time without taking the country's initial situation, and hence its potential for poverty reduction, into account. We thus suggest comparing traditional poverty decompositions with a counterfactual situation. This counterfactual indicates what a country starting from its initial situation could be expected to achieve in terms of income, inequality, and, hence, poverty developments. We construct those counterfactuals by modeling income and inequality trends characterized by convergence and a “Kuznets” relationship between inequality and development. Parameters in those relationships are estimated using PovcalNet survey data from 144 countries and we construct our counterfactual poverty predictions for 71 developing countries. While there is overall a tight relationship between actual developments and counterfactuals, we identify several cases, where both deviate from each other and discuss the policy implications. We also check for commonalities in differently performing countries and find that those who fell particularly short of expectations often underwent political transition and state fragility.     

Inclusive institutions,unequal outcomes: Democracy,state capacity,and income inequality

Although the relationship between democratic rule and income inequality has received important attention in recent literature, the evidence has been far from conclusive. In this paper, we explore whether the redistributive effect of democratic rule is conditional on state capacity. Previous literature has outlined that pre-existing state capacity may be necessary for inequality-reducing policies under democratic rule. In contrast to that intuitive view, this study argues that democratic rule and high state capacity combined produce higher levels of income inequality over time. This relationship operates through the positive effect of high-capacity democratic context on foreign direct investment and financial development. By making use of a novel measure of state capacity based on cumulative census administration, we find empirical support for these claims using fixed-effects panel regressions with the data from 126 industrial and developing countries between 1970 and 2013.     

Regional implications of financial market development: Industry location and income inequality

We develop a heterogeneous-firms model with trade in goods, labor mobility and credit constraints due to moral hazard. Mitigating financial frictions reduces the incentive of mobile workers to migrate to one region such that an unequal distribution of industrial activity becomes less likely. Hence, financial market development has opposite regional implications as trade liberalization. While the former leads to more dispersion of economic activity across space, the latter tends to drive clustering. This has immediate implications for income inequality both between regions and workers. According to our model, financial development reduces inequality in both dimensions.     

Financial intermediation,inclusion, Fintech,and income inequality in Africa: Robust evidence from the supply and demand side data

The current literature on the finance-inequality nexus fall short of providing extensive evidence. This paper fills the gap by framing the financial sector; to the development of financial intermediation (supply side) and individual use of financial services (demand side). The first approach decouples the financial sector into the banking and stock market. We use the 5-year nonoverlapping averaged data from 1980 to 2017 across 49 countries and employ a panel data fixed effect and two-stage least squared estimation (2sls). We show that banking and stock market development widens income inequality. Besides, the effect is more prominent in countries that have a banking and stock market than countries only with the banking sector. The second approach uses financial inclusion and financial technology (Fintech) data from three waves of survey data in 2011, 2014 and 2017 on the individual use of financial services across 39 countries. We obtain three key findings. First, institutional quality significantly affects financial inclusion and Fintech. Second, Fintech positively affects inclusion and savings. Third, financial inclusion and Fintech exacerbate income inequality. Our result asserts a natural tendency that financial sector development exacerbate income inequality in Africa.     

Corporate profit tax,firm entry with unemployment,and income inequality

In this paper, we provide a general equilibrium analysis of corporate profit tax on income distribution, unemployment, and wage inequality. With firm dynamics in industrial sector, we identify a new channel through which profit tax affects income and wage inequality: profit tax cut will widen not only the wage gap between skilled and unskilled labor, but also exacerbate the wage inequality of unskilled labor among different sectors. The welfare effect of profit tax cut depends on unemployment deepening (labor-distortion effect) and more manufacturing firms enter the market (business-creation effect), eroding the market share of incumbent firms (business-stealing effect).     

Industrialization and spatial income inequality in rural China, 1986-921

Rural industrialization has been a dominant factor responsible for China's rapid economic growth over the last 18 years, but it has been accompanied by increased inter-regional income inequality. Using the most recent rural income data and two alternative Gini coefficient decomposition methods, this study finds that income inequality, especially inter-regional income inequality increased significantly in the period 1986-92. More than half of national income inequality was due to its inter-provincial component, and three quarters of inter-provincial inequality was due to its inter-zonal component. Uneven development of township and village enterprises has been a major cause of increased regional income inequality.     

Correction of China's income inequality for missing top incomes

After accounting for top incomes missing from the Chinese Household Income Project, this paper examines the income inequality trend in China during the 21st century. Our analysis, which involves fitting the upper tail of the income distribution to a power-law model, reveals that the authoritative income survey data miss 0.68% of the population and 6.19% of aggregate income in 2018. Despite the most recent survey data providing better coverage of top incomes, our correction is still crucial. The raw survey data indicate a consistently increasing Gini coefficient between 2002 and 2018, but the corrected index starts to decline from 2013. Meanwhile, the revised top 1% income share increases from 7.01% in 2002 to 7.89% in 2013 and then slightly decreases to 7.64% in 2018, while the revised top 10% income share stabilises at around 33% throughout the period. Notably, China's revised top 10% and top 50% income shares in 2018 are close to those of the United Kingdom but are considerably lower than those of the United States.     

Corporate responsibility for less income inequality

This article explores corporate responsibility for less income inequality within the boundaries of the organization and with regard to society at large. Instead of examining the entire range of income distribution, the focus is on the lower and upper ends. The ‘floor’ is defined as a living wage, supported by strong economic and ethical arguments and proposed as a minimal income standard that can – and thus should – be implemented by companies. As for the ethically acceptable ‘ceiling’ of executive compensation, its identification and justification are more complicated. However, strong economic and ethical arguments can be made in favor of a drastic reduction of executive pay. Corporate responsibility for less income inequality in society means, first, to ‘walk the talk’ and set an example and, second, to being ‘a good corporate citizen’ by supporting legislation for a living wage and an ethically acceptable ceiling of executive pay.     

The effect of income inequality on political polarization: Evidence from European regions, 2002–2014

This article investigates whether income inequality leads to political polarization and provides new evidence that an increase in the Gini coefficient at the local level increases the probability of supporting a political party at the extreme left and right of the ideological distribution. Using individual data for 25 European countries from 2002 to 2014, I find that increasing inequality leads on average to more support for left‐wing parties. I also find that increasing inequality leads to more support for far‐right parties among older individuals. Support for far‐right parties seems to be driven by rising anti‐immigrant sentiments. The results are robust to different specifications, including an instrumental variable that addresses the endogeneity of income inequality.     

Foreign bank ownership and income inequality: empirical evidence

ABSTRACT

Using country-level panel data over 1995–2013 on within-country income inequality and foreign bank presence, this paper establishes a positive relation between the two, running from higher foreign bank presence to income inequality. Given that foreign bank participation increased by 62% over the period 1995 to 2013, our baseline results imply a 5.8% increase in the Gini coefficient on average over this period, ceteris paribus. These results are robust to the inclusion of country and year fixed effects and to the use of restrictions on foreign bank entry in the host countries as an instrumental variable. We show that this positive effect is channelled through the lack of greenfield entry and the associated lower levels of competition.     

A refinement of the relationship between economic growth and income inequality

There is mixed evidence in the literature of a clear relationship between income inequality and economic growth. Most of that work has focused almost exclusively on developed economies. In what we believe to be a first effort, our emphasis is solely on developing economics, which we classify as high-income and low-income developing countries (HIDC and LIDC). We make such distinction on theoretical and empirical grounds. Empirically, the World Bank has classified developing economies in this manner since 1978. The data in our sample are also supportive of such classifications. We provide theoretical scaffolding that uses asymmetric credit constraints as a premise for separating developing economies in such a way. We find strong evidence of a negative relationship between income inequality and economic growth in LIDC to be in stark contrast with a positive inequality–growth relationship for HIDC. Both correlations are statistically significant across multiple econometric specifications. Using international data from 1960 to 2010, this article explores the effect of income inequality on economic growth using dynamic panel technique, such as system generalized method of moments (GMM) that is believed to mitigate endogenous problem. These results are strikingly contrasting to the previous estimation results of Forbes (2000) displaying significant positive correlation between two variables in the short to medium term.     

When income differences hurt or excite: The nonlinear effect of regional inequality on subjective wellbeing

Combining information from the European Union Statistics on Income and Living Conditions and the European Social Survey, we investigate the relationship between subjective well-being and income inequality using regional inequality indicators and individual data. We assume that inequality aversion and perception of social mobility affect the impact of regional inequality on subjective well-being in opposite directions. We find evidence of an inverse U-shaped effect of inequality, where inequality starts to have a positive effect on subjective well-being that becomes negative with a switch point before the average of the Gini index for the entire sample. The rationale for our nonlinear finding is that Hirschman's tunnel effect (and the positive effect of perceived social mobility) prevails for low levels of inequality, while inequality aversion and negative relative income effects are relatively stronger when inequality is higher. Robustness checks on different sample splits are consistent with the hypothesis of the two drivers.