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Svenja Flechtner and Claudius Gräbner
''The heterogeneous relationship between income and inequality: a panel co-integration approach''
( 2019, Vol. 39 No.4 )
We study the relationship between per-capita income and income inequality with a heterogeneous panel co-integration approach. We extend previous studies in two respects: first, we compile a more extensive data set for 87 countries over 26-58 years and consider measures for both pre-tax and post-tax income inequality; second, we take into account country heterogeneity rather than focussing on average panel estimates alone. We find a statistically significant positive group-mean based relationship using pre-tax income inequality, but no such relationship for post-tax income inequality. However, we find estimates on the country level to be very heterogeneous in both cases. Both empirical findings invite further research: by laying out relevant empirical patterns using a robust methodology, our contribution is meant as a vantage point for further theoretical work geared towards understanding the mechanisms underlying these findings.
Keywords: Inequality, panel co-integration, aggregated income, GDP per capita, growth
JEL: O1 - Economic Development: General
F5 - International Relations and International Political Economy: General
Manuscript Received : Mar 30 2019 Manuscript Accepted : Nov 12 2019

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