INCOME INEQUALITY, ECONOMIC GROWTH, AND INSTITUTIONAL FACTORS: A COMPARATIVE ANALYSIS AT THE EUROPEAN UNION (EU) LEVEL

Abstract

he rising income inequality around the world and its persistence represent a social phenomenon raising concerns at all levels (global, regional and country) for governments and pose huge challenges to master it and to identify effective solutions. The aim of the paper is to provide a comparative insight at the European Union (EU) level involving 25 Member States regarding the interplay between income inequality, economic growth, and institutional quality. Gini Index sourced from World Income Inequality Database, GDP per capita series extracted from the World Bank database, and institutional indicators collected from the World Governance Indicators database represent the examined variables over the period 1990-2022. Their dynamic is comparatively analysed and discussed. The clustering method is applied to identify similarities and differences between European Union countries in terms of the interplay between income inequality, economic growth and institutional factors and to draw relevant conclusions for future effective policy measures meant to reduce inequality and to boost economic growth. The clustering analysis based on the average growth rate of income inequality and per capita GDP revealed that European Union countries are differently facing the challenge of income inequality rising. Six groups of countries with similar paths regarding the income inequality and economic growth were identified. High-income countries face low levels of income inequality but with an upward trend. Economic growth is accompanied with high levels and increasing levels of income inequality. The institutional quality level may strength the capacity of a country to address the problem of rising income inequality, but it remains unclear the interplay of institutional quality dynamic in reducing income inequality. The implications of the paper’s findings are framed in the context of the European policies.

Keywords

• conomic growth
• income inequality
• institutional factors