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Causality Between Per Capita Real GDP and Income Inequality in the U.S.: Evidence from a Wavelet Analysis

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  • Shinhye Chang

    (University of Pretoria)

  • Rangan Gupta

    (University of Pretoria)

  • Stephen M. Miller

    (University of Nevada, Las Vegas)

Abstract

This study applies wavelet coherency analysis to examine the relationship between the U.S. per capita real GDP and six income inequality measures over the period 1917 to 2012. Wavelet analysis allows the simultaneous examination of correlation and causality between the two series in both the time and frequency domains. Our findings provide robust evidence of positive correlation between the growth and inequality across frequencies. Yet, directions of causality vary across frequencies and evolve with time. Evidence that inequality leads per capita real GDP at both high- and low-frequencies exists for the Top 1 and 10% measures of inequality with little evidence that real GDP per capita leads inequality. In the time-domain, the time-varying nature of long-run causalities implies structural changes in the two series. These findings provide a more thorough picture of the relationship between the U.S. per capita real GDP and inequality measures over time and frequency, suggesting important implications for policy makers.

Suggested Citation

  • Shinhye Chang & Rangan Gupta & Stephen M. Miller, 2018. "Causality Between Per Capita Real GDP and Income Inequality in the U.S.: Evidence from a Wavelet Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 135(1), pages 269-289, January.
  • Handle: RePEc:spr:soinre:v:135:y:2018:i:1:d:10.1007_s11205-016-1485-0
    DOI: 10.1007/s11205-016-1485-0
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    Cited by:

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    2. 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.
    3. Mehmet Balcilar & Seyi Saint Akadiri & Rangan Gupta & Stephen M. Miller, 2019. "Partisan Conflict and Income Inequality in the United States: A Nonparametric Causality-in-Quantiles Approach," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 142(1), pages 65-82, February.
    4. Mehmet Balcilar & Seyi Saint Akadiri & Rangan Gupta & Stephen M. Miller, 2017. "Partisan Conflict and Income Distribution in the United States: A Nonparametric Causality-in-Quantiles Approach," Working Papers 201741, University of Pretoria, Department of Economics.

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    More about this item

    Keywords

    Income; Inequality; Wavelet analysis; U.S.;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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