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Determinants of income inequality

Author

Listed:
  • Akhsyim Afandi
  • Vebryna Permatasari Rantung
  • Hazem Marashdeh

    (Department of Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia.
    Department of Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia.
    Department of Finance, Abu Dhabi University, United Arab Emirates.)

Abstract

This study examines whether changing economic structure, social conditions, and financialization are responsible for increased income inequality in Indonesia. By em- ploying panel data of 32 provinces in Indonesia that spans from 2007 to 2013, it finds that structural change affects income inequality, increased share of finance reduces inequality, which is against the financialization hypothesis, and social conditions have expected effects on income inequality. While an increased share of both agriculture and service sectors tends to reduce inequality, an increased share of manufacture sector has no effect on inequality. This study finds that falling poverty increases inequality, implying that policy to reduce poverty might not be neutral for inequality and instead cannot prevent it from increasing. Since the higher the college participation rate the higher income inequality tends to be, it does not automatically imply that in order to reduce inequality we need to reduce the number of people who go to college. It might be the case that the college participation rate has not reached a turning point, below which its increase increases inequality, but beyond which its increases reduces inequality.

Suggested Citation

  • Akhsyim Afandi & Vebryna Permatasari Rantung & Hazem Marashdeh, 2017. "Determinants of income inequality," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 9(2), pages 159-171, April.
  • Handle: RePEc:uii:journl:v:9:y:2017:i:2:p:159-171
    DOI: 10.20885/ejem.vol9.iss2.art5
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    Citations

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    Cited by:

    1. Cut Risya Varlitya & Raja Masbar & Abd. Jamal & Muhammad Nasir, 2023. "Do Regional Macroeconomics Variables Influence the Income Inequality in Indonesia?," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 180-199.
    2. Diana Barros & Aurora A. C. Teixeira, 2021. "Unlocking the black box: A comprehensive meta-analysis of the main determinants of within-region income inequality," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 41(1), pages 55-93, February.

    More about this item

    Keywords

    inequality; poverty; financialization; economic structure.;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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