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Determining the Relationship between Income Inequality, Economic Growth & Inflation

Author

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  • Danish Khattak
  • Ayaz Muhammad
  • Kashif Iqbal

Abstract

The objective of the study is to determine the relationship between economic growth, income distribution, and inflation and to test the existence of Kuznets Hypothesis in Pakistan. For this purpose, data on economic growth, income distribution and inflation have been collected from WDI for 22 years, i.e., from 1980 to 2002. Johnson’s Co-integration model has been used to analyze data. Empirical results proposed that income inequality has a long-term co-integrated movement with economic growth. In addition, economic growth hinders with the high income inequality. Furthermore, the empirical results show that there exists a log run relationship between inflation and income distribution. Another finding is that Kuznets hypothesis exists in Pakistan, despite the fact that inequality is affected positively by inflation. The government should control inflation to trim down income inequality. Government must revise tax policy, because indirect taxes cause high inflation due to which income distribution become unfair. Direct taxes should be employed in the in those people who have larger income.

Suggested Citation

  • Danish Khattak & Ayaz Muhammad & Kashif Iqbal, 2014. "Determining the Relationship between Income Inequality, Economic Growth & Inflation," Journal of Social Economics, Research Academy of Social Sciences, vol. 1(3), pages 104-114.
    • Handle: RePEc:rss:jnljse:v1i3p2
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    References listed on IDEAS

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    Cited by:

    1. Muhammad Aleem Arshad & Muhammad Ramzan Sheikh & Zeeshan Arif, 2024. "Does Price Level Increase Income Inequality in Pakistan? A Disaggregated Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(2), pages 154-159.
    2. Sima Siami-Namini, 2019. "Agriculture and Non-Agriculture Growth, Inflation and Income Inequality in Developed and Developing Countries," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(11), pages 43-51, November.
    3. Atta Ullah & Zhao Kui & Saif Ullah & Chen Pinglu & Saba Khan, 2021. "Sustainable Utilization of Financial and Institutional Resources in Reducing Income Inequality and Poverty," Sustainability, MDPI, vol. 13(3), pages 1-25, January.
    4. John A. Bishop & Haiyong Liu & Lester A. Zeager & Yizhen Zhao, 2020. "Revisiting macroeconomic activity and income distribution in the USA," Empirical Economics, Springer, vol. 59(3), pages 1107-1125, September.
    5. Sima Siami-Namini, 2019. "Agriculture and Non-Agriculture Growth, Inflation and Income Inequality in Developed and Developing Countries," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 11(11), pages 1-43, November.

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