TY - JOUR
T1 - Inflation and income inequality in developed and developing countries
AU - Siami-Namini, Sima
AU - Hudson, Darren
N1 - Publisher Copyright:
© 2019, Emerald Publishing Limited.
PY - 2019/8/2
Y1 - 2019/8/2
N2 - Purpose: The purpose of this paper is to investigate both linear and/or nonlinear effects of inflation on income inequality and to test the Kuznets hypothesis using panel data of 24 developed countries (DCs) and 66 developing countries (LDCs) observed over the period of 1990–2014. Design/methodology/approach: This paper explores the short- and long-run Granger causality relationship between inflation and income inequality using the Toda and Yamamoto (1995) procedure and a Vector Error Correction Model (VECM) approach. The existence of a nonlinear relationship between inflation and income inequality is confirmed implying as inflation rises income inequality decreases. Income inequality then reaches a minimum and then starts rising again. The findings of this paper show the existence of Kuznets “U-shaped” hypothesis between income inequality and real GDP per capita in DCs group, and the existence of Kuznets’ inverted “U-shaped” hypothesis for LDCs group. Findings: The results indicate that there is no bi-directional Granger causality between inflation and income inequality in the short-run, but, there is bi-directional Granger causality in the long-run for both the DCs and LDCs group. The results help us to assess the effectiveness of monetary policy in reducing income inequality in both the DCs and LDCs group. As a policy implication, monetary policy is often aimed at controlling the annual rate of inflation in the long-run with a short-run focus on reducing output gaps and creating employment. However, managing inflation may have implications for income inequality. Originality/value: This is original research paper which analyzes the “U-shaped” and inverted “U-shaped” paths of income inequality and real GDP per capita for large sample of two group countries including developed and developing countries, respectively. Also, this paper analyzes the nonlinear relationship between inflation and income inequality in two groups. Furthermore, this paper investigates the short- and long-run relationship between variables. The results are important for policy makers.
AB - Purpose: The purpose of this paper is to investigate both linear and/or nonlinear effects of inflation on income inequality and to test the Kuznets hypothesis using panel data of 24 developed countries (DCs) and 66 developing countries (LDCs) observed over the period of 1990–2014. Design/methodology/approach: This paper explores the short- and long-run Granger causality relationship between inflation and income inequality using the Toda and Yamamoto (1995) procedure and a Vector Error Correction Model (VECM) approach. The existence of a nonlinear relationship between inflation and income inequality is confirmed implying as inflation rises income inequality decreases. Income inequality then reaches a minimum and then starts rising again. The findings of this paper show the existence of Kuznets “U-shaped” hypothesis between income inequality and real GDP per capita in DCs group, and the existence of Kuznets’ inverted “U-shaped” hypothesis for LDCs group. Findings: The results indicate that there is no bi-directional Granger causality between inflation and income inequality in the short-run, but, there is bi-directional Granger causality in the long-run for both the DCs and LDCs group. The results help us to assess the effectiveness of monetary policy in reducing income inequality in both the DCs and LDCs group. As a policy implication, monetary policy is often aimed at controlling the annual rate of inflation in the long-run with a short-run focus on reducing output gaps and creating employment. However, managing inflation may have implications for income inequality. Originality/value: This is original research paper which analyzes the “U-shaped” and inverted “U-shaped” paths of income inequality and real GDP per capita for large sample of two group countries including developed and developing countries, respectively. Also, this paper analyzes the nonlinear relationship between inflation and income inequality in two groups. Furthermore, this paper investigates the short- and long-run relationship between variables. The results are important for policy makers.
KW - Income inequality
KW - Inflation
KW - Kuznets hypothesis
KW - Panel cointegration
UR - http://www.scopus.com/inward/record.url?scp=85069760703&partnerID=8YFLogxK
U2 - 10.1108/JES-02-2018-0045
DO - 10.1108/JES-02-2018-0045
M3 - Article
AN - SCOPUS:85069760703
SN - 0144-3585
VL - 46
SP - 611
EP - 632
JO - Journal of Economic Studies
JF - Journal of Economic Studies
IS - 3
ER -