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On the dynamics of poverty and income inequality in US states

  • Nicholas Apergis
  • Oguzhan Dincer
  • James E. Payne

Purpose – This study seeks to provide answers to the following questions: Is there a relationship between poverty and income inequality in the short run/long run? Is the relationship unidirectional from income inequality to poverty as the previous studies assume, or is it bidirectional? Design/methodology/approach – The paper investigates the causality between income inequality and poverty within a multivariate framework using a panel data set of 50 US states over the period 1980 to 2004. Findings – The results reveal that a bidirectional relationship exists between poverty and income inequality both in the short run and in the long run. With respect to the short-run dynamics associated with poverty, both income inequality and the unemployment rate have a positive and statistically significant impact on poverty, a negative and statistically significant impact for real per capita personal income and level of education, while corruption is insignificant. In terms of the short-run dynamics associated with income inequality, poverty, the unemployment rate, real per capita personal income, and the level of education have a positive and statistically significant impact, while corruption has a statistically insignificant impact on income inequality. With regard to the long-run dynamics, the statistically significant error correction terms indicate the presence of a feedback relationship between poverty and income inequality. Originality/value – This study contributes to the existing empirical literature on several fronts. First, while previous studies rely on cross-country data, both the cross-sectional and time series variation of a panel data set of all 50 US states spanning the period 1980 to 2004 is exploited. Second, while the previous studies implicitly assume unidirectional causality from income inequality and poverty in their model specifications, the short-run and long-run causal dynamics between poverty and income inequality within a panel vector error correction model are explicitly examined.

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Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

Volume (Year): 38 (2011)
Issue (Month): 2 (May)
Pages: 132-143

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Handle: RePEc:eme:jespps:v:38:y:2011:i:2:p:132-143
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  1. Timothy Besley & Robin Burgess, 2003. "Halving Global Poverty," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 3-22, Summer.
  2. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  3. Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers 1999_04, University of Liverpool Management School.
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  7. Peter Pedroni, 2004. "Panel Cointegration: Asymptotic and Finite Sample Properties of Pooled Time Series Tests with an Application to the PPP Hypothesis," Department of Economics Working Papers 2004-15, Department of Economics, Williams College.
  8. Fredriksson, Per G. & List, John A. & Millimet, Daniel L., 2003. "Bureaucratic corruption, environmental policy and inbound US FDI: theory and evidence," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1407-1430, August.
  9. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
  10. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-70, Special I.
  11. Fisman, Raymond & Gatti, Roberta, 2002. " Decentralization and Corruption: Evidence from U.S. Federal Transfer Programs," Public Choice, Springer, vol. 113(1-2), pages 25-35, October.
  12. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
  13. Kalwij, Adriaan & Verschoor, Arjan, 2007. "Not by growth alone: The role of the distribution of income in regional diversity in poverty reduction," European Economic Review, Elsevier, vol. 51(4), pages 805-829, May.
  14. Rajeev Goel & Daniel Rich, 1989. "On the economic incentives for taking bribes," Public Choice, Springer, vol. 61(3), pages 269-275, June.
  15. Dincer, Oguzhan C., 2008. "Ethnic and religious diversity and corruption," Economics Letters, Elsevier, vol. 99(1), pages 98-102, April.
  16. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  17. Douglas Holtz-Eakin, 1986. "Testing for Individual Effects in Dynamic Models Using Panel Data," NBER Technical Working Papers 0057, National Bureau of Economic Research, Inc.
  18. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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