Income Inequality and Inflation Relationship in Selected European Countries: Evidence from PMG-ARDL Model

Abstract

To explore the dynamics of economic factors, this study undertakes a comprehensive analysis of the inflation and income inequality relationship (IIIR) for selected European countries in the period 2000-2020. By employing both cointegration testing and the Pooled Mean Group (PMG)/Autoregressive Distributed Lag (ARDL) modeling approach, the research sheds light on the short-run and long-run relationships underlying these crucial economic variables. The PMG/ARDL model indicates a significant long-run negative IIIR, consistent across most of the analyzed countries. This suggests that as inflation rises, income inequality tends to decrease in the long term, which may be attributed to various economic mechanisms that redistribute wealth during periods of inflation. However, the short-run analysis did not yield significant results, indicating that the short-run impact of inflation on income inequality might be less pronounced or overshadowed by other economic factors. These insights contribute to a deeper understanding of how inflation influences wealth distribution, with implications for economic policy, particularly in contexts where income inequality is an increasing issue. For policymakers, understanding the long-run inverse IIIR could be instrumental in designing economic policies that aim to mitigate inequality.

Keywords

• Income Inequality
• Gini Index
• Inflation
• PMG/ARDL
• Panel Data

Seçili Avrupa Ülkelerinde Gelir Eşitsizliği ve Enflasyon İlişkisi: PMG-ARDL Modelinden Kanıtlar

Abstract

Bu çalışmada, ekonomik faktörlerin dinamiklerini araştırmak amacıyla 2000-2020 dönemi için 15 Avrupa ülkesindeki gelir eşitsizliği ve enflasyon arasındaki etkileşim kapsamlı bir şekilde incelenmiştir. Hem koentegrasyon testi hem de Pooled Mean Group (PMG) / Otoregresif Dağıtılmış Gecikme (ARDL) modelleme yaklaşımı kullanılarak yapılan bu araştırma, bu kritik ekonomik değişkenlerin kısa ve uzun vadeli ilişkilerini aydınlatmaktadır. PMG/ARDL modeli, gelir eşitsizliği ile enflasyon arasında uzun vadede anlamlı bir negatif ilişki olduğunu göstermektedir; bu ilişki analiz edilen çoğu ülkede tutarlıdır. Bu durum, enflasyon arttıkça gelir eşitsizliğinin uzun vadede azalma eğiliminde olduğunu öne sürmektedir ve bu durum, enflasyon dönemlerinde servetin yeniden dağıtılması gibi çeşitli ekonomik mekanizmalara atfedilebilir. Ancak, kısa vadeli analizler anlamlı sonuçlar vermemiştir, bu da enflasyonun gelir eşitsizliği üzerindeki kısa dönemli etkisinin daha az belirgin olabileceğini veya diğer ekonomik faktörler tarafından gölgelenmiş olabileceğini göstermektedir. Bu bulgular, enflasyonun servet dağılımını nasıl etkilediğine dair daha derin bir anlayış sunmakta olup, gelir eşitsizliğinin artan bir endişe haline geldiği durumlarda ekonomik politika için önem taşımaktadır. Politika yapıcılar için, enflasyon ile gelir eşitsizliği arasındaki uzun vadeli ters yönlü ilişkileri anlamak, eşitsizliği azaltmayı hedefleyen ekonomik politikaların tasarımında önemli bir rol oynayabilir.

Keywords

• Gelir Eşitsizliği
• Gini Endeksi
• Enflasyon
• PMG/ARD
• Panel Veri

References

1. Acemoglu, D. ve Robinson, J. A. (2006). Economic backwardness in political perspective. The American Political Science Review, 100(1), 115–131. DOI: https://doi.org/10.1017/S0003055406062046
2. Aghion, P. ve Bolton, P. (1997). A theory of trickle-down growth and development. The Review of Economic Studies, 64(2), 151-172. https://doi.org/10.2307/2971707
3. Albanesi, S. (2007). Inflation and inequality. Journal of Monetary Economics, 54(4), 1088-1114. doi:10.1016/j.jmoneco.2006.02.009
4. Atkinson, A. B., Piketty, T., & Saez, E. (2011). Top incomes in the long run of history. Journal of Economic Literature, 49(1), 3–71. doi:10.1257/jel.49.1.3
5. Balcilar, M., Chang, S., Gupta, R., ve Miller, S. M. (2018). The relationship between the inflation rate and inequality across US states: a semiparametric approach. Quality & Quantity, 52, 2413-2425. doi:10.1007/s11135-017-0676-3
6. Beck, T., Demirgüç-Kunt, A. ve Levine, R. (2007). Finance, inequality and the poor. Journal of Economic Growth, 12, 27-49. https://doi.org/10.1007/s10887-007-9010-6
7. Berg, A., Ostry, J. D., Tsangarides, C. G. ve Yakhshilikov, Y. (2018). Redistribution, inequality, and growth: new evidence. Journal of Economic Growth, 23(3), 259–305. doi:10.1007/s10887-017-9150-2
8. Bordo, M. D. ve Haubrich, J. G. (2017). Deep recessions, fast recoveries, and financial crises: Evidence from the American record. Economic Inquiry, 55(1), 527–541. doi:10.1111/ecin.12374

9. Bulíř, A. (2001). Income inequality: Does inflation matter? IMF Staff Papers, 48(1), 139-159. doi:10.2307/4621662
10. Cardoso, E. (1992). Inflation and Poverty ( No: w4006) (s. w4006). Cambridge, MA: National Bureau of Economic Research. doi:10.3386/w4006
11. Coibion, O., Gorodnichenko, Y., Kueng, L. ve Silvia, J. (2017). Innocent bystanders? Monetary policy and inequality. Journal of Monetary Economics, 88, 70-89. doi:10.1016/j.jmoneco.2017.05.005
12. Crowe, C. (2006). Inflation, Inequality, and Social Conflict. Washington, D.C: International Monetary Fund. https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Inflation-Inequality-and-Social-Conflict-19289
13. Dabla-Norris, E., Kochhar, K., Suphaphiphat, N., Ricka, F. ve Tsounta, E. (2015). Causes and consequences of income inequality: A global perspective. International Monetary Fund. https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf
14. Desai, R. M., Olofsgård, A., ve Yousef, T. M. (2003). Democracy, inequality, and inflation. American Political Science Review, 97(3), 391-406. doi:10.1017/S0003055403000765
15. Dinardo, J. ve Pischke, J.-S. (1997). The returns to computer use revisited: Have pencils changed the wage structure too? Quarterly Journal of Economics, 112(1), 291–303. https://doi.org/10.1162/003355397555190
16. Duarte, P. ve Schnabl, G. (2019). Monetary policy, inequality and political instability. The World Economy, 42(2), 614–634. https://doi.org/10.1111/twec.12730
17. Easterly, W. ve Fischer, S. (2001). Inflation and the poor. Journal of Money, Credit and Banking, 33(2), 160-178. https://doi:10.2307/2673879
18. Fagiolo, G. ve Roventini, A. (2012). Macroeconomic Policy in DSGE and Agent-Based Models. University of Verona, Department of Economics. https://EconPapers.repec.org/RePEc:ver:wpaper:07/2012
19. Fischer, S. ve Modigliani, F. (1978). Towards an understanding of the real effects and costs of inflation. Weltwirtschaftliches Archiv, 114(4), 810-833. http://www.jstor.org/stable/40438708
20. Galbraith, J. K. ve Berner, M. (Ed.). (2001). Inequality and industrial change: A global view. Cambridge, UK New York: Cambridge University Press.
21. Galli, R. ve Hoeven, R. van der. (2001). Is inflation bad for income inequality: The importance of the initial rate of inflation. Employment paper. Geneva: Employment Sector, Internat. Labour Off. https://www.econbiz.de/Record/is-inflation-bad-for-income-inequality-the-importance-of-the-initial-rate-of-inflation-galli-rossana/10001657380
22. Göcen, S. (2023). Inflation and income inequality linkages: do institutions matter? Applied Economics, 56(48), 5713–5726. https://doi.org/10.1080/00036846.2023.2257933
23. Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74. https://doi.org/10.1016/S0304-4076(03)00092-7
24. Jantti, M. and Bratsberg, Bernt and Røed, Knut and Raaum, Oddbjørn and Naylor, Robin A. and Osterbacka, Eva and Bjorklund, Anders and Eriksson, Tor (2006). American Exceptionalism in a New Light: A Comparison of Intergenerational Earnings Mobility in the Nordic Countries, the United Kingdom and the United States (January 2006). IZA Discussion Paper No. 1938, Available at SSRN: https://ssrn.com/abstract=878675 or http://dx.doi.org/10.2139/ssrn.878675
25. Kuznets, S. (1955). Economic growth and income inequality. The American Economic Review, 45(1), 1-28.
26. Leibbrandt, M., Woolard, I., Finn, A. ve Argent, J. (2010), "Trends in South African Income Distribution and Poverty since the Fall of Apartheid", OECD Social, Employment and Migration Working Papers, No. 101, OECD Publishing, Paris, https://doi.org/10.1787/5kmms0t7p1ms-en
27. Levin, A., Lin, C. F. ve Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24. https://doi.org/10.1016/S0304-4076(01)00098-7
28. Liu, X. ve Cao, H. (2008). Inflation and Income Inequality in a Modified Cash-in-Advance Economy.https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=fefec4714c8ca5d7ec8b71a438bb9eb14770adbd
29. Maddala, G. S. ve Kim, I.-M. (1999). Unit Roots, Cointegration, and Structural Change (1. bs.). Cambridge University Press. doi:10.1017/CBO9780511751974
30. Maussner, A. (2004). Endogenous Growth with Nominal Frictions. Journal of Economics, 83(1), 1-46. doi:10.1007/s00712-003-0062-6
31. Monnin, P. (2014). Inflation and income inequality in developed economies. CEP Working Paper Series. http://dx.doi.org/10.2139/ssrn.2444710
32. Nantob, N. (2015). Income inequality and inflation in developing countries: An empirical investigation. Economics Bulletin, 35(4), 2888-2902. https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-15-00481
33. Olayungbo, D. O. ve Quadri, A. (2019). Remittances, financial development and economic growth in sub-Saharan African countries: evidence from a PMG-ARDL approach. Financial Innovation, 5(1), 9. doi:10.1186/s40854-019-0122-8
34. Pedroni, P. (1999). Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors. Oxford Bulletin of Economics and Statistics, 61(s1), 653-670. doi:10.1111/1468-0084.61.s1.14
35. Persson, T. ve Tabellini, G. (1994). Is inequality harmful for growth? American Economic Review, 84(3), 600-621. https://EconPapers.repec.org/RePEc:aea:aecrev:v:84:y:1994:i:3:p:600-621
36. Pesaran, M. H. (2006). Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure. Econometrica, 74(4), 967-1012. doi:10.1111/j.1468-0262.2006.00692.x
37. Pesaran, M. H. (2007). A simple panel unit root test in the presence of cross‐section dependence. Journal of applied econometrics, 22(2), 265-312. https://doi.org/10.1002/jae.951
38. Piketty, T. ve Saez, E. (2014). Inequality in the long run. Science, 344(6186), 838-843. doi:10.1126/science.1251936
39. Scully, G. W. (2002). Economic freedom, government policy and the trade-off between equity and economic growth. Public Choice, 113(1-2), 77-96. https://doi.org/10.1023/A:1020308831424
40. Thalassinos, E., Ugurlu, E. ve Muratoglu, Y. (2012). Income Inequality and Inflation in the EU. European Research Studies Journal, 15(1), 127-140. https://www.um.edu.mt/library/oar//handle/123456789/31001
41. Tyson, L. D. (1998). Commentary: How can economic policy strike a balance between economic efficiency and income equality? Proceedings—Economic Policy Symposium—Jackson Hole, 337-343. https://EconPapers.repec.org/RePEc:fip:fedkpr:y:1998:p:337-343
42. Yue, H. Y. (2011). Income inequality, economic growth and inflation: a study on Korea. International Journal of Economics and Research, 2(5), 14-21. https://www.oalib.com/paper/2066609