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Causality between Output and Income Inequality across US States: Evidence from a Heterogeneous Mixed Panel Approach

Author

Listed:
  • Shinhye Chang

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Hsiao-Ping Chu

    (Department of Business Administration, Ling-Tung University, Taichung, Taiwan)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, South Africa)

  • Stephen M. Miller

    (Department of Economics, Lee Business School, University of Nevada, Las Vegas, USA)

Abstract

In this paper, we investigate the causal relationship between output, proxied by personal income, and income inequality in a panel data of 48 states from 1929 to 2012. We employ the causality methodology proposed by Emirmahmutoglu and Kose (2011), as it incorporates possible slope heterogeneity and cross-sectional dependence in a multivariate panel. Evidence of bi-directional causal relationship exists for several inequality measures -- the Atkinson Index, Gini Coefficient, the Relative Mean Deviation, Theil’s entropy Index and Top 10% -- but no evidence of the causal relationship for the Top 1% measure. Also, this paper finds state-specific causal relationships between personal income and inequality.

Suggested Citation

  • Shinhye Chang & Hsiao-Ping Chu & Rangan Gupta & Stephen M. Miller, 2017. "Causality between Output and Income Inequality across US States: Evidence from a Heterogeneous Mixed Panel Approach," Working Papers 201706, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201706
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    Cited by:

    1. Oğuzhan Çepni & Rangan Gupta & Zhihui Lv, 2020. "Threshold effects of inequality on economic growth in the US states: the role of human capital to physical capital ratio," Applied Economics Letters, Taylor & Francis Journals, vol. 27(19), pages 1546-1551, November.

    More about this item

    Keywords

    Income inequality; Panel data; Personal Income; Granger causality;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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