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%.     

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.     

Does income inequality really matter for credit booms?

This paper addresses the question whether income inequality is associated with credit booms, alongside other macroeconomic factors. We distinguish between the different types of credit booms—real estate credit booms, household credit booms, firm credit booms and credit booms that turn into crises. Furthermore, our analysis of a sample of 70 countries between 1990 and 2016 does not provide any evidence of credit booms driving income inequality. We observe that capital inflows increase the likelihood of credit boom occurrence, while countries experiencing high economic growth tend to have more credit booms. Finally, we note that credit booms are more frequent in countries with fixed exchange rate regimes.     

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.     

ICT and income inequality: a cross-national perspective

The importance of information and communications technology (ICT) for economic growth and development is widely researched and seemingly well understood, but the effect of such investments on income inequality is less well documented. On the one hand, improvements in infrastructure are expected to expand economic opportunities for previously underserved populations. On the other hand, ICT growth may exacerbate inequality due to differential access and skill premiums. We use panel data from 109 countries during the period 2001–2014 to examine the empirical connection between ICT and income inequality in a cross-national context. Our results suggest that the effect of ICT on income inequality depends both on the specific type of ICT and on the measure of income inequality. In addition, the magnitude of ICT’s effect on income inequality is comparable to that of more traditional forms of economic infrastructure. Finally, we find that the association between ICT and income inequality is conditional on other economic and political characteristics.     

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.     

Level of development and income inequality in the United States: Kuznets hypothesis revisited once again

This study revisits the well-known Kuznets hypothesis that postulated an inverted-U relation between the level of development of a country or region and its degree of income inequality. We address the widely-shared view that, in recent years, a regular-U, and not a Kuznets-type inverted-U, has characterized the relation between income and inequality in the United States and some other developed countries. The paper works with data for the US states and has two main distinguishing features. First, it permits cross-state spillovers, which seem conceptually relevant and statistically significant, but, to our knowledge, have not been included in the fairly extensive literature on the topic. Second, we use the most reliable recent annual panel covering the period 2006–2016, which has also not been included in any existing research. The pooled-OLS, as well as the two-way fixed-effects panel estimates, indicate the existence of a significant regular-U pattern which is consistent with the influential view in the literature. However, the estimates that adjust for cross-state spillovers indicate a weak regular-U pattern in which the (log) linear and quadratic terms lack statistical significance at the usual levels. We conclude that when cross-state spillovers are appropriately accounted for, statistically significant evidence is lacking to support the view that a regular-U pattern describes the relation between income and inequality in the United States in recent years.     

Growth and income inequality: a canonical model

Summary. We develop an endogenous growth model with elastic labor supply, in which agents differ in their initial endowments of physical capital. In this framework, the growth rate and the distribution of income are jointly determined. The key equilibrating variable is the equilibrium labor supply. It determines the rate of return to capital, which in turn affects both the rate of capital accumulation and the distribution of income across agents. We then examine the impact of various structural shocks on growth and distribution. We find that faster growth is associated with a more unequal, contemporaneous distribution of income, consistent with recent empirical findings.Received: 7 October 2004, Revised: 18 February 2005, JEL Classification Numbers: O17, O40.Cecilia García-Peñalosa: Correspondence toGarcía-Peñalosa would like to acknowledge the financial support received from the Institut d’Economie Publique (IDEP), Marseille. Turnovsky’s research was supported in part by the Castor endowment at the University of Washington. The paper has benefited from seminar presentations at the University of California, Riverside, and the University of Kansas, as well as from the comments of an anonymous referee.     

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.     

Decomposing US regional income inequality from 1969 to 2009

This article analyses changes in levels and composition of income inequality among US counties from 1969 to 2009. It also decomposes inequality using the Theil coefficient into between-State and within-State inequality. The article finds that income inequality has increased in the period studied with between-State inequality decreasing and within-State inequality increasing. We subsequently decompose income inequality into the proportion arising from differences in productivity and employment–population ratios across counties. The results suggest that inequality arising from differentials in labour productivity has fallen over the period studied while those arising from employment–population ratio differences have increased.     

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.     

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].     

On factor decomposition of cross-country income inequality: some extensions and qualifications

In a recent paper in this journal Duro and Esteban [Econom. Lett. 60 (1998) 269] have proposed a factor decomposition of the Theil [Economics and Information Theory, Amsterdam, North-Holland, 1967] index of inequality over per capita incomes into the (unweighted) sum of the inequality indexes of the factors in order to measure the contribution of each individual factor to the overall inequality. The purpose of this little note is to extend and qualify the meaning of such a decomposition, to show that the decomposition also holds for another Theil [Economics and Information Theory, Amsterdam, North-Holland, 1967], index of inequality and that both decompositions offer qualitatively the same general results about the contribution of the factors to aggregate inequality when applied to a particular data set, the OECD countries, although quantitative results differ.     

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.     

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.     

International knowledge spillovers and wage inequality in developing countries

In this paper, international knowledge spillovers are incorporated in a horizontal innovation model, designed to explain the observed uncertain effects that openness of trade can have on wage inequality in small developing countries. Openness of trade can produce two different effects: an increase in the relative price of less-skilled labor-intensive products and a wider skill discrepancy due to knowledge spillovers from the more to less developed country. The former triggers a fall in the wage premium, while the latter widens the wage premium gap in a developing country. These two opposing forces explain the observed uncertain effects of openness to trade on wage inequality in developing countries.     

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.     

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.     

Income inequality and income bias in voter turnout

In the era of growing income inequality around the world, it remains inconclusive how higher income inequality affects income bias in turnout (i.e., high-income citizens vote more likely than low-income citizens). Using large-scale cross-national survey data, we show that (1) strong income bias in turnout exists in many parts of the world, (2) higher income inequality is related to lower income bias in turnout by demobilizing high-income citizens and mobilizing low-income citizens, and (3) this relationship is partly explained by the pattern that vote buying is more common in societies with higher income inequality and thus mobilizes low-income citizens but decreases political efficacy among high-income citizens. Ultimately, this study suggests that growing income inequality may not exaggerate political inequality, but may challenge the legitimacy of democratic elections.     

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.