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Examining the Impact of Macro-Economic Conditions on Income Inequality

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  • Jäntti, Markus

    ()
    (SOFI, Stockholm University)

  • Jenkins, Stephen P.

    ()
    (London School of Economics)

Abstract

This paper proposes a new approach for analyzing the relationship between macroeconomic factors and the income distribution. The conventional method of analysis is regression of summary inequality indices on variables such as the unemployment and inflation rates. Building on the lessons from recent advances in time-series econometrics, we suggest instead that one should first fit a parametric functional form to the income distribution for each year, and then model the time series of model parameters in terms of the macroeconomic factors. Inferences about the relationship between the income distribution and macro-economic factors can be derived from the model estimates. We apply these methods to data from the United Kingdom for 1961-91, and contrast the results with those found using earlier methods.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 364.

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Length: 39 pages
Date of creation: Sep 2001
Date of revision:
Publication status: published in: Journal of Economic Inequality, 2010, 8(2), 221–240
Handle: RePEc:iza:izadps:dp364

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Keywords: unemployment; macro-economic conditions; Income inequality; Singh-Maddala distribution; inflation;

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References

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  1. Jantti, Markus, 1994. "A More Efficient Estimate of the Effects of Macroeconomic Activity on the Distribution of Income," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 372-78, May.
  2. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 979, Cowles Foundation for Research in Economics, Yale University.
  3. Rebecca M. Blank & Alan S. Blinder, 1985. "Macroeconomics, Income Distribution, and Poverty," NBER Working Papers 1567, National Bureau of Economic Research, Inc.
  4. Singh, S K & Maddala, G S, 1976. "A Function for Size Distribution of Incomes," Econometrica, Econometric Society, Econometric Society, vol. 44(5), pages 963-70, September.
  5. David M. Cutler & Lawrence F. Katz, 1991. "Macroeconomic Performance and the Disadvantaged," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 1-74.
  6. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 600-621, June.
  7. McDonald, James B, 1984. "Some Generalized Functions for the Size Distribution of Income," Econometrica, Econometric Society, Econometric Society, vol. 52(3), pages 647-63, May.
  8. Bjorklund, Anders, 1991. " Unemployment and Income Distribution: Time-Series Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 93(3), pages 457-65.
  9. Blinder, Alan S & Esaki, Howard Y, 1978. "Macroeconomic Activity and Income Distribution in the Postwar United States," The Review of Economics and Statistics, MIT Press, vol. 60(4), pages 604-09, November.
  10. Wilfling, Bernd & Kramer, Walter, 1993. "The Lorenz-ordering of Singh-Maddala income distributions," Economics Letters, Elsevier, Elsevier, vol. 43(1), pages 53-57.
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Cited by:
  1. Arne Heise, 2006. "A Post-Kaleckian, Post-Olsonian Approach to Unemployment and Income Inequality in Modern Varieties of Capitalism," Annals of Economics and Finance, Society for AEF, vol. 7(2), pages 357-383, November.
  2. Atkinson, Tony, 2002. "Atkinson: evaluation of national action plans on social inclusion: the role of EUROMOD," EUROMOD Working Papers EM1/02, EUROMOD at the Institute for Social and Economic Research.
  3. Jaynes, Gerald D., 2011. "Social Policy and U.S. Poverty 1960-1999: An Economic History," Working Papers, Yale University, Department of Economics 90, Yale University, Department of Economics.

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