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.     

The political economy triangle of government spending,interest-group influence,and income inequality: Evidence and implications from the US states

This paper introduces the political economy triangle (PET) concept of government spending, special interest groups (SIGs) influence, and income inequality, empirically confirming its existence and unveiling its nature while directly addressing key shortcomings of most prior research on the determinants of such inequality. Using static and dynamic panel techniques and data from the US states, it reports several new results: (i) the findings of previous studies regarding the roles of government spending and interest groups, including labor unions, in income distribution are confirmed, however, their estimated inequality effects grossly underestimate those obtained when endogeneity issues are accounted for explicitly; (ii) a dynamic tripartite relationship between the variables of the PET exists; (iii) government spending and SIGs' influence, including union strength, beyond their direct effects on inequality, have a separate positive impact through their interactions; (iv) the effectiveness of government spending in reducing inequality diminishes as the level of SIGs' influence and union strength increase in the short and long run, (v) the aggregate inequality-increasing effect of SIGs is strengthened and the inequality-reducing effects of unions weakened as the spending rises, in the short run and long run. Finally, the broad implications of these findings are discussed.     

The impact of infrastructure investments on income inequality: Evidence from US states

Our analysis of US state-level data on an annual frequency, from 1976 to 2008, sheds new light on a plausible causal link between infrastructure investments, namely public spending on highways, and income inequality. This causal relationship is drawn out using the number of seats in the US House of Representatives Committee on Appropriations (HRCA) as an instrument to identify quasi-random variations in state-level spending on highways. An exogenous pattern which emerges when a state gains an additional member to the HRCA is that it is allocated with new federal grants. This increase in federal transfers for infrastructure financing results in slashing of expenditures on highways and a crowding-out effect of federal funding for state investments on highways. Spending cuts on highways produced by a new HRCA member being attained by a state can unwittingly cause income inequality to rise over a short 2-year time horizon. Similar challenges with decentralized development to finance infrastructure via federal transfers to state and sub-national governments may be encountered by other industrially advanced, emerging and low-income developing economies. US data over the mentioned period reveal a strong positive correlation with state spending on highways and wages paid for construction jobs. Suggestive evidence indicates that the construction sector also plays an important role in the transmission channel from a rise in state spending on highways to lowering income inequality, albeit during specific intervals, as opposed to on a long-term basis.     

Factor decomposition of cross-country income inequality, 1960–1990

In this paper we present Esteban's 1994 [Esteban, J., 1994. La desigualdad interregional en Europa y en España: descripción y análisis. In: Esteban, J.M^a., Vives, X. (dirs.), Crecimiento y convergencia regional en España y en Europa, Vol. 2, Instituto de Análisis Económico] decomposition of the Theil index of inequality over per capita incomes into the (unweighted) sum of the inequality indices of (i) the productivity per employed worker, (ii) the employment rate, (iii) the active over working-age population rate, and (iv) the working-age over total population rate. Each of these factors clearly have different meanings for analysis as well as for policy. We apply this factoral decomposition to a set of 120 countries. We also contrast the empirical findings with the results obtained for the 23 OECD countries. [OECD, Labour Force Statistics, Several issues, Paris].     

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.     

Wage inequality in Turkey, 2002–10

This paper studies the evolution of wage inequality in Turkey using household labour force survey data from 2002 to 2010. Between 2002 and 2004, the relative supply of more‐educated workers to less‐educated workers remained constant while their relative wages decreased in favour of less‐educated workers. However, between 2004 and 2010, the relative supply of more‐educated workers to less‐educated workers rose, while their relative wages remained constant or kept increasing in favour of more‐educated workers. This suggests factors other than those implied by a simple supply‐demand model are involved, such as skill‐biased technical change or minimum wage variations. The decomposition of wage inequality reveals that the price (wage) effect dominates the composition effect particularly in the first period. Our results show that the real minimum wage hike in 2004 corresponds to a major institutional change, which proved to be welfare‐increasing in terms of wage inequality. The upper‐tail (90/50) wage inequality decreased between 2002 and 2004 and stayed constant thereafter, whereas the lower‐tail (50/10) wage inequality decreased throughout the period. Our findings thus provide evidence supporting the institutional argument for explaining wage inequality.     

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.     

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.     

National pro-poor spending programmes and their effect on income inequality and poverty: Evidence from Vietnam

This article examines the causal effects of the national (pro-poor) targeted programmes (NTPs) on both poverty incidence and inequality in Vietnam over the period 2002–2010. While the links between NTPs and poverty alleviation and income inequality have previously been analysed independently, this study is the first to offer a comprehensive analysis of NTPs expenditure on poverty and inequality simultaneously. Applying the system generalized method of moments estimator to a panel of Vietnamese regional data, we are unable to establish that NTPs have significantly mitigated poverty incidence. However, we estimate that NTPs have significantly increased inequality. We offer possible explanations why the NTPs have resulted in these unintended outcomes and discuss potential policies which can reduce both poverty and inequality.     

The effect of foreign aid on income inequality: Evidence from panel cointegration

This paper examines the long-run effect of foreign aid on income inequality for 21 recipient countries using panel cointegration techniques to control for omitted variable and endogeneity bias. We find that aid exerts an inequality increasing effect on income distribution.     

Financial development,control of corruption and income inequality

This paper examines the effect of financial development and control of corruption on income inequality in 21 Sub-Saharan African (SSA) countries over the period 1985–2011 using the pooled mean group (PMG) estimator. The empirical results show that financial development measures have positive impact on income inequality, which suggest that financial development increases income inequality. On the other hand, the coefficients of control of corruption are negative and significantly related to income inequality which implies that corruption control reduces income inequality. Further, the interaction of the financial development and the control of corruption is found to be negatively and significantly related to income inequality. Equally the interaction of the financial development and transparency index (an alternate measure of corruptibility) is found to be negatively and significantly related to income inequality. These findings suggest that the control of corruption and transparency in governance are crucial in reducing income inequality in SSA.     

The Canadian productivity stagnation, 2002–2014

Total factor productivity (TFP) growth in Canada between 2002 and 2014 has been only 0.16% per year. This figure is substantially smaller than that of the United States, or that of Canada in the past. We perform multiple counterfactual exercises to show that this small TFP growth cannot be accounted for by several compositional effects or mismeasurements of factors of production. We identify two key sectors (mostly Mining and to a lesser extent Manufacturing) that drive all of the TFP growth difference with the United States. Despite the lack of TFP growth, Canada has experienced sustained income growth due to a prolonged period of appreciation of the terms of trade (while US terms of trade have deteriorated), making real income in the two countries grow at similar rates.     

How large is income inequality in China: assessment on different estimates of Gini coefficient

The rising income inequality in China has attracted social attentions, especially since SWUFE published the unbelievably high Gini coefficient in December 2012. In order to answer the question how large income inequality in current China is, this paper compares existing different Gini coefficients estimated from four different household surveys, which are the NBS household survey, the CHIP survey, the CHFS of SWUFE, and the CFPS of Peking University, and then assesses these household surveys themselves. The relevant evidences indicate that the national Gini coefficient in current China is between 0.47~0.52. The sampling defects of the CHFS are significantly major and that the national Gini coefficient of 0.61 published by SWUFE is seriously overestimated.     

The impact of (un)conventional expansionary monetary policy on income inequality – lessons from Japan

ABSTRACT

This paper analyzes the impact of conventional and unconventional monetary policy on income inequality in Japan, using hitherto unexplored data from the Japan Household Panel Survey. Empirical evidence shows that expansionary monetary policy in Japan has contributed to diminishing the gender pay gap through an increase in working time of women relative to men, but also to increasing the education pay gap. These effects may have materialized via the aggregate demand channel and the labour productivity channel. In contrast, expansionary monetary policy has had no significant impact on the development of the age pay gap.     

Education stock and its implication for income inequality: The case of Asian economies

This study develops a quadratic relationship between education and income inequality among Asian developing economies for the period from 1960 to 2015. Panel cointegration and fully modified OLS is applied for the estimation of long‐run coefficients. The results show that initial, primary, secondary, and tertiary enrollment increases inequality. However, the effect of education on income inequality becomes negative after a certain threshold level (i.e., 97.5% for primary, 43.5% for secondary, and 11% for tertiary). Thus, this result proves the Kuznets phenomenon of an inverted U‐shape relationship for primary, secondary, and tertiary enrollments.     

United States income inequality: The concept of countervailing power revisited

This article uses some of the conceptual infrastructure associated with J.K. Galbraith’s “countervailing power” argument to explore the deep history of U.S. income inequality. Two explanatory variables—institutional power and distributive conflict—have played an integral role in the shifting patterns of U.S. income inequality since the late nineteenth century. The “commodified” power of large firms, manifested in aggregate concentration and the markup, exacerbates inequality while the “countervailing” power of organized labor, manifested in union density and strike activity, mitigates inequality. One implication of this research is that U.S. income inequality is unlikely to diminish unless the labor movement (or a comparable social movement) is strengthened.     

Income, income inequality, and health: Evidence from China

This paper tests using survey data from China whether individual health is associated with income and community-level income inequality. Although poor health and high inequality are key features of many developing countries, most of the earlier literature has drawn on data from developed countries in studying the association between the two. We find that self-reported health status increases with per capita income, but at a decreasing rate. Controlling for per capita income, we find an inverted-U association between self-reported health status and income inequality, which suggests that high inequality in a community poses threats to health. We also find that high inequality increases the probability of health-compromising behavior such as smoking and alcohol consumption. Most of our findings are robust to different measures of health status and income inequality. Journal of Comparative Economics 34 (4) (2006) 668–693.     

In search of thresholds in the household income inequality–growth relationship

This paper investigates the shape of the relationship between household income inequality and economic growth. More precisely we search for the existence of threshold values in this relationship by employing a dynamic panel smooth transition regression model to account for potential endogeneity problems. We find that there do exist threshold values (that are different for different groups of countries): below the threshold, household income inequality is growth enhancing, while above the threshold, inequality has a negative or no effect on economic growth.     

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.     

The impact of natural disasters on household income,expenditure, poverty and inequality: evidence from Vietnam

Natural disasters are expected exacerbate poverty and inequality, but little evidence exists to support the impact at household level. This article examines the effect of natural disasters on household income, expenditure, poverty and inequality using the Vietnam Household Living Standard Survey in 2008. The effects of a natural disaster on household income and expenditure, corrected for fixed effects and potential endogeneity bias, are estimated at 6.9% and 7.1% declines in Vietnamese household per capita income and expenditure, respectively. Natural disasters demonstrably worsen expenditure poverty and inequality in Vietnam, and thus should be considered as a factor in designing poverty alleviation policies.