Library Dissertation Showcase

Assessing the role of income inequality and its links to recessions: an OECD investigation

  • Year of Publication:
  • 2022

Income inequality has been defined as the “Challenge of Our Time” by Barack Obama during his presidency and remains something that effects every individual for better or worse. Inequality signifies limited income opportunity or mobility, with the potential to decrease output, accelerating the gap between the rich and the poor. This paper investigates the relationship between income inequality at different distribution levels in relations to recessions, undertaking multiple regressions, correlation techniques and models using panel data on the 38 OECD countries between 1973-2020. Using correlation matrices to understand each variables association with each other and Probit and Logit regressions to determinate the effect income inequality has on the predicted probability of recessions. The Correlation results concluded weak association between an increase in recessions and a reduction in income inequality, but the Pearson Correlation matrix suggested an increase the growth rate is associated with an increase in Top one and Ten percent, whilst the regressions results suggest that increase in the Gini Index, decrease the predicted probability of recessions. Concluding that high concertation of income into the top distributions of income decrease the chance of recessions, possibly being achieved through capital accumulation, reinvestment and savings. Although, recessions lead to a decrease of income inequality, raising the question of income inequality as a social or economic issue. Therefore, policy recommendations have been hard to determine as governments will have to prioritise economic growth or equality. The scope of this research has been limited in its lack of data and occurrences of large recessions between 1973-2020 but should spark debate and shed light on issues that warrant further investigation.

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