IDEAS home Printed from https://ideas.repec.org/a/ipf/finteo/v39y2015i4p349-370.html
   My bibliography  Save this article

Economic freedom and income inequality: further evidence from 58 countries in the long-run

Author

Listed:
  • Nicholas Apergis

    (University of Piraeus, Department of Banking and Financial Management, Piraeus, Greece)

Abstract

This study employs panel data for 58 countries from 1980-2010, to investigate the dynamic relationship between economic freedom and income inequality. Both linear and non-linear (Panel Smooth Threshold Regression) cointegration estimation methods are used to identify a long-run equilibrium relationship between the overall economic freedom index and its components, and income inequality. The linear long-run parameter estimates for the entire panel of countries show that the association is negative, while the non-linear long-run parameter estimates indicate that above a threshold point the association between economic freedom and income inequality is negative, while below this threshold point the association is positive.

Suggested Citation

  • Nicholas Apergis, 2015. "Economic freedom and income inequality: further evidence from 58 countries in the long-run," Financial Theory and Practice, Institute of Public Finance, vol. 39(4), pages 349-370.
  • Handle: RePEc:ipf:finteo:v:39:y:2015:i:4:p:349-370
    as

    Download full text from publisher

    File URL: http://fintp.ijf.hr/upload/files/ftp/2015/4/apergis.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sarah Voitchovsky, 2005. "Does the Profile of Income Inequality Matter for Economic Growth?," Journal of Economic Growth, Springer, vol. 10(3), pages 273-296, September.
    2. González, Andrés & Teräsvirta, Timo & van Dijk, Dick & Yang, Yukai, 2005. "Panel Smooth Transition Regression Models," SSE/EFI Working Paper Series in Economics and Finance 604, Stockholm School of Economics, revised 11 Oct 2017.
    3. J. R. Clark & Robert A. Lawson, 2008. "The Impact of Economic Growth, Tax Policy and Economic Freedom on Income Inequality," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 24(Fall 2008), pages 23-31.
    4. Jakob De Haan & Susanna Lundström & Jan‐Egbert Sturm, 2006. "Market‐oriented institutions and policies and economic growth: A critical survey," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 157-191, April.
    5. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(3), pages 597-625, June.
    6. Anindya Banerjee, 1999. "Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(S1), pages 607-629, November.
    7. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    8. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," The World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-591, September.
    9. Nathan Ashby & Russell Sobel, 2008. "Income inequality and economic freedom in the U.S. states," Public Choice, Springer, vol. 134(3), pages 329-346, March.
    10. Berggren, Niclas, 2003. "The Benefits of Economic Freedom: A Survey," Ratio Working Papers 4, The Ratio Institute.
    11. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
    12. Gordon Tullock, 1986. "Transitional Gains and Transfers," Cato Journal, Cato Journal, Cato Institute, vol. 6(1), pages 143-154, Spring/Su.
    13. L. Vanessa Smith & Stephen Leybourne & Tae-Hwan Kim & Paul Newbold, 2004. "More powerful panel data unit root tests with an application to mean reversion in real exchange rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(2), pages 147-170.
    14. Arthur Goldsmith, 1995. "Democracy, property rights and economic growth," Journal of Development Studies, Taylor & Francis Journals, vol. 32(2), pages 157-174.
    15. Peter Pedroni, 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(S1), pages 653-670, November.
    16. Richard Vedder & Lowell Gallaway & David Sollars, 1988. "The Tullock-Bastiat hypothesis, inequality-transfer curve and the natural distribution of income," Public Choice, Springer, vol. 56(3), pages 285-294, March.
    17. Hongyi Li & Heng‐fu Zou, 1998. "Income Inequality is not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-334, October.
    18. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," The World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-591, September.
    19. Robert J. Barro, 1998. "Determinants of Economic Growth: A Cross-Country Empirical Study," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522543, February.
    20. repec:cto:journl:v:18:y:1998:i:2:p: is not listed on IDEAS
    21. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
    22. 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 653-670, Special I.
    23. Scully, Gerald W, 2002. "Economic Freedom, Government Policy and the Trade-Off between Equity and Economic Growth," Public Choice, Springer, vol. 113(1-2), pages 77-96, October.
    24. Saikkonen, Pentti, 1992. "Estimation and Testing of Cointegrated Systems by an Autoregressive Approximation," Econometric Theory, Cambridge University Press, vol. 8(1), pages 1-27, March.
    25. Gruber, Jonathan & Hungerman, Daniel M., 2007. "Faith-based charity and crowd-out during the great depression," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1043-1069, June.
    26. Berggren, Niclas, 1999. "Economic Freedom and Equality: Friends or Foes?," Public Choice, Springer, vol. 100(3-4), pages 203-223, September.
    27. Dick van Dijk & Dennis Fok & Philip Hans Franses, 2005. "A multi-level panel STAR model for US manufacturing sectors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(6), pages 811-827.
    28. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    29. Seth W. Norton, 1998. "Poverty, Property Rights, and Human Well-Being: A Cross-National Study," Cato Journal, Cato Journal, Cato Institute, vol. 18(2), pages 233-245, Fall.
    30. Lee C. Adkins & Ronald L. Moomaw & Andreas Savvides, 2002. "Institutions, Freedom, and Technical Efficiency," Southern Economic Journal, John Wiley & Sons, vol. 69(1), pages 92-108, July.
    31. Li, Hongyi & Zou, Heng-fu, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-334, October.
    32. Banerjee, Anindya, 1999. "Panel Data Unit Roots and Cointegration: An Overview," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 607-629, Special I.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Petar Stankov, 2017. "Economic Freedom and Welfare Before and After the Crisis," Springer Books, Springer, number 978-3-319-62497-6, February.
    2. Andreea-Oana Iacobuță & Mihaela Ifrim, 2020. "Welfare Mentality as a Challenge to European Sustainable Development. What Role for Youth Inclusion and Institutions?," Sustainability, MDPI, vol. 12(9), pages 1-25, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nicholas Apergis & Oguzhan Dincer & James E. Payne, 2014. "Economic Freedom And Income Inequality Revisited: Evidence From A Panel Error Correction Model," Contemporary Economic Policy, Western Economic Association International, vol. 32(1), pages 67-75, January.
    2. Nicholas Apergis & Arusha Cooray, 2017. "Economic Freedom and Income Inequality: Evidence from a Panel of Global Economies— A Linear and a Non-Linear Long-Run Analysis," Manchester School, University of Manchester, vol. 85(1), pages 88-105, January.
    3. Apergis, Nicholas & Dincer, Oguzhan C. & Payne, James E., 2012. "Live free or bribe: On the causal dynamics between economic freedom and corruption in U.S. states," European Journal of Political Economy, Elsevier, vol. 28(2), pages 215-226.
    4. Bennett, Daniel L. & Vedder, Richard K., 2013. "A Dynamic Analysis of Economic Freedom and Income Inequality in the 50 U.S. States: Empirical Evidence of a Parabolic Relationship," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 43(1).
    5. Chletsos Michael & Roupakias Stelios, 2020. "The effect of military spending on income inequality: evidence from NATO countries," Empirical Economics, Springer, vol. 58(3), pages 1305-1337, March.
    6. Tuomas Malinen, 2012. "Estimating the long-run relationship between income inequality and economic development," Empirical Economics, Springer, vol. 42(1), pages 209-233, February.
    7. T. Tavor & L. D. Gonen & M. Weber & U. Spiegel, 2018. "The Effects of Income Levels and Income Inequalities on Happiness," Journal of Happiness Studies, Springer, vol. 19(7), pages 2115-2137, October.
    8. Nicholas Apergis & Oguzhan Dincer & James E. Payne, 2014. "Economic Freedom And Income Inequality Revisited: Evidence From A Panel Error Correction Model," Contemporary Economic Policy, Western Economic Association International, vol. 32(1), pages 67-75, January.
    9. Olivier Damette & Mathilde Maurel & Michael A. Stemmer, 2016. "What does it take to grow out of recession? An error-correction approach towards growth convergence of European and transition countries," Post-Print halshs-01318131, HAL.
    10. Maza, Adolfo & Gutiérrez-Portilla, Paula, 2022. "Outward FDI and exports relation: A heterogeneous panel approach dealing with cross-sectional dependence," International Economics, Elsevier, vol. 170(C), pages 174-189.
    11. Martin Ravallion, 2012. "Why Don't We See Poverty Convergence?," American Economic Review, American Economic Association, vol. 102(1), pages 504-523, February.
    12. Coulibaly, Issiaka & Gnimassoun, Blaise, 2013. "Optimality of a monetary union: New evidence from exchange rate misalignments in West Africa," Economic Modelling, Elsevier, vol. 32(C), pages 463-482.
    13. Adalgiso Amendola & Roberto Dell’Anno, 2014. "Income inequality and economic growth: an empirical investigation in Mediterranean countries," RIEDS - Rivista Italiana di Economia, Demografia e Statistica - The Italian Journal of Economic, Demographic and Statistical Studies, SIEDS Societa' Italiana di Economia Demografia e Statistica, vol. 68(2), pages 35-58, April-Jun.
    14. Martin Ravallion, 2013. "The Idea of Antipoverty Policy," NBER Working Papers 19210, National Bureau of Economic Research, Inc.
    15. Breitung, Jörg & Pesaran, Mohammad Hashem, 2005. "Unit roots and cointegration in panels," Discussion Paper Series 1: Economic Studies 2005,42, Deutsche Bundesbank.
    16. Charles-Coll, Jorge A., 2010. "The optimal rate of inequality: A framework for the relationship between income inequality and economic growth," MPRA Paper 28921, University Library of Munich, Germany.
    17. Lubimov, I.L. (Любимов, И.Л.), 2016. "Inequality and Growth: Theoretical Aspects of Dependence [Неравенство И Экономический Рост: Теоретические Аспекты Зависимости]," Working Papers 2042, Russian Presidential Academy of National Economy and Public Administration.
    18. Marrero, Gustavo A. & Rodríguez, Juan G., 2013. "Inequality of opportunity and growth," Journal of Development Economics, Elsevier, vol. 104(C), pages 107-122.
    19. Delphin Kamanda Espoir & Nicholas Ngepah, 2021. "Income distribution and total factor productivity: a cross-country panel cointegration analysis," International Economics and Economic Policy, Springer, vol. 18(4), pages 661-698, October.
    20. Halter, David & Oechslin, Manuel, 2010. "Inequality and Growth: The Neglected Time Dimension," CEPR Discussion Papers 8033, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    economic freedom; Economic Freedom Index; income distribution;
    All these keywords.

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ipf:finteo:v:39:y:2015:i:4:p:349-370. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/ijfffhr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martina Fabris (email available below). General contact details of provider: https://edirc.repec.org/data/ijfffhr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.