Determining the Relationship between Income Inequality, Economic Growth & Inflation
Journal Title: Journal of Social Economics - Year 2014, Vol 1, Issue 3
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.
Authors and Affiliations
Danish Khattak, Ayaz Muhammad, Kashif Iqbal
Keywords
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