DETERMINANTS OF INCOME INEQUALITY IN THE SELECTED GROUP OF EUROPEAN COUNTRIES: A PANEL DATA ANALYSIS

Abstract

The paper focuses on providing basic characteristics of income inequality in a group of selected European countries in the period from 2000 to 2019. After presenting stylized facts and brief literature review, the paper proceeds to empirical analysis of income inequality in the observed countries by panel data techniques. Fixed and random effects models are estimated. After Hausman test approved the usage of fixed effects model, it was tested for serial correlation and robust standard errors were calculated. The empirical analysis of the determinants of income inequality shows that GDP growth, share of population in upper 10% of income percentile, Human Development Index and unemployment rate increase income inequality measured by Gini index, while share of workforce and share of population with tertiary education decrease income inequality. The results of the empirical analysis provide insight into determinants of income inequality, which may be useful for economic policy decision makers in their efforts to decrease the income inequality.

Keywords

• income inequality
• gini index
• economic growth
• panel analysis
• fixed effects model