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Regional integration and income inequality: a synthetic counterfactual analysis of the European Monetary Union

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  • Florence Bouvet

Abstract

In Europe, it is quite common for public opinions and national politicians to blame economic insecurity and rising inequality on deeper regional integration within the European Union (EU), and especially on the euro. There is, however, no empirical research that clearly identifies the euro as the cause of the recent increase in income inequality. Using the synthetic counterfactual methodology developed by Abadie and Gardeazabal (2003), I estimate what would have happened to inequality in both gross and net income within euro-area countries, had these countries not switched to the single currency. In most countries (especially peripheral countries), without the euro, gross-income inequality would have been lower, while net-income inequality would have been higher. These results imply that, while deeper economic integration might have exacerbated gross income inequality, lower interest rates allowed countries to counteract these disparities with their social welfare programmes.

Suggested Citation

  • Florence Bouvet, 2021. "Regional integration and income inequality: a synthetic counterfactual analysis of the European Monetary Union," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 37(1), pages 172-200.
    • Handle: RePEc:oup:oxford:v:37:y:2021:i:1:p:172-200.
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    File URL: http://hdl.handle.net/10.1093/oxrep/graa059
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    Citations

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    Cited by:

    1. Xinhai Lu & Mingxu Bai & Bing Kuang & Danling Chen, 2021. "Unlocking the Relationship between Land Finance and Regional Integration," Land, MDPI, vol. 10(9), pages 1-17, August.
    2. Mohammad Reza Farzanegan & Mohammad Ali Kadivar, 2023. "The effect of Islamic revolution and war on income inequality in Iran," Empirical Economics, Springer, vol. 65(2), pages 1007-1026, August.
    3. Liang Wang & Fangfang Zhang & Yuzhu Zang & Jian Duan, 2022. "Understanding the Regional Integration Process from the Perspective of Agglomeration and Urban Networks: Case Study in Central China," IJERPH, MDPI, vol. 19(19), pages 1-15, October.
    4. Tomasz Serwach, 2022. "The European Union and within-country income inequalities. The case of the New Member States," Working Papers hal-03548416, HAL.
    5. Florence Bouvet & Roy Bower & Jason C. Jones, 2022. "Currency Devaluation as a Source of Growth in Africa: A Synthetic Control Approach," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 48(3), pages 367-389, June.
    6. Florentin Kerschbaumer & Andreas Maschke, 2021. "The Implications of Monetary Union for Income Inequality: An Empirical Assessment," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 47(4), pages 537-574.
    7. Tomasz Serwach, 2023. "The European Union and within‐country income inequalities. The case of the new member states," The World Economy, Wiley Blackwell, vol. 46(7), pages 1890-1939, July.

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