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Do public and internal debt cause income inequality? Evidence from Kenya

Author

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  • Wilkista Lore Obiero
  • Seher Gülşah Topuz

Abstract

Purpose - This study aims to determine whether there is an effect of internal and public debt on income inequality in Kenya for the period 1970–2018. Design/methodology/approach - The relationship is examined by using the Autoregressive Distributed Lag (ARDL) model by Pesaranet al.(2001) and Toda Yamamoto causality by Toda and Yamamoto (1995). Findings - Our findings suggest that both internal and public debt harm inequality in Kenya in the long term. Furthermore, a one-way causality from internal debt to income inequality is also obtained while no causality relationship is found to exist between public debt and income inequality. Based on these findings, the study recommends that to reduce income inequality levels in Kenya, other methods of financing other than debt financing should be preferred because debt financing is not pro-poor. Originality/value - This study is unique based on the fact that no previous paper has analysed the debt and inequality relationship in Kenya. To the best of our knowledge, this will be the first study to analyse the applicability of redistribution effect of debt in Kenya. The study is also different in that it provides separate analysis for public debt and internal debt on their effects on income inequality.

Suggested Citation

  • Wilkista Lore Obiero & Seher Gülşah Topuz, 2021. "Do public and internal debt cause income inequality? Evidence from Kenya," Journal of Economics, Finance and Administrative Science, Emerald Group Publishing Limited, vol. 27(53), pages 124-138, November.
    • Handle: RePEc:eme:jefasp:jefas-05-2021-0049
    DOI: 10.1108/JEFAS-05-2021-0049
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    More about this item

    Keywords

    Internal debt; Public debt; Income inequality; Income redistribution; D31; E24; H63;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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