The Relationship between Economic Freedom and Income Inequality: A Case Study OECD and Non-OECD countries

Document Type : Original Article

Authors

1 Professor in Economics, Department of Economics, Shahid Bahonar University of Kerman

2 M.A in Economics, Department of Economics, Shahid Bahonar University of Kerman

Abstract

The main purpose of the research examines the relationship between income inequality and economic freedom for 90 different countries of the OECD and NONOECD between 1995 and 2015. The results of Granger and Toda-Yamamato causality tests suggest the existence of a two-way relationship between these two variables and the Hasheo causality suggesting a one-way connection from the side of income inequality to economic freedom for member states and the causal relation from economic freedom to inequality for non-member countries.The results of GMM tests also showed that in the first relationship, economic freedom has a negative and significant effect on income inequality in OECD countries, but this effect is positive in NONOECD countries. On the other hand, the effect of democracy on income inequality is significant and positive in all three groups (OECD, NONOECD, and all countries). Finally, economic growth also has a negative and significant effect on income inequality in OECD countries and has a positive effect on NONOECD countries.. In OECD countries, the effect of democracy on economic freedom is positive and significant, but in the NONOECD countries, and according to the first difference method, the relationship between these two factors is negative and significant.

Keywords

Journal of Econometric Modelling
Volume 3, Issue 1 - Serial Number 8
December 2018
Pages 55-84

Files

Share

How to cite

Statistics