Asymmetric effects of inequality on real output levels of the United States

Abstract

The existing literature on the short- and long-run impacts of economic growth on income inequality indicates that positive and negative output shocks have worsened the income distribution in the United States. In this paper, we report our empirical examination of the opposite; that is, the impact of positive and negative income inequality shocks on the real output levels. Using the same time-series data, over the period 1917–2012, in a more comprehensive manner, by employing six measures of income distribution, we examined the impact of an increase/decrease in income inequality on economic growth, using the NARDL approach. The results provide evidence in support of a long-run asymmetric impact between income inequality and the real output levels, since the long-run coefficients of positive changes have positive signs, while the signs of those of negative changes are negative, indicating that a decrease or an increase in income inequality improves the real output level in the US.

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Fig. 1

Notes

  1. 1.

    Negative income inequality in this study refers to a decrease in the level of income inequality, which is expected to have a positive (impact) shock on the real output, or income level, and vice versa.

  2. 2.

    According to Granger and Yoon (2002), two times series are hidden-cointegrated if their positive and negative components are cointegrated with each other.

  3. 3.

    The cumulative dynamic multiplier effects of a unit change in \(x_{t}^{ + }\) and \(x_{t}^{ - }\) on \(y_{t + j}\) , respectively, can be computed as follows: \(m_{h}^{ + } = \mathop \sum \nolimits_{j = 0}^{h} \frac{{\partial y_{t + j} }}{{\partial x_{t}^{ + } }}\) and \(m_{h}^{ - } = \mathop \sum \nolimits_{j = 0}^{h} \frac{{\partial y_{t + j} }}{{\partial x_{t}^{ - } }}, h = 0,1,2 \ldots\) . Note that as \(h \to \infty , m_{h}^{ + } \to L_{{X^{ + } }}\) and \(m_{h}^{ - } \to L_{{X^{ - } }}\), where \(L_{{X^{ + } }}\) and \(L_{{X^{ - } }}\) are the long-run coefficients of positive and negative changes, respectively.

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Correspondence to Seyi Saint Akadiri.

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Nasr, A.B., Balcilar, M., Gupta, R. et al. Asymmetric effects of inequality on real output levels of the United States. Eurasian Econ Rev 10, 47–69 (2020). https://doi.org/10.1007/s40822-019-00129-x

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Keywords

  • Income distribution
  • Economic growth
  • Asymmetry
  • Nonlinear ARDL model
  • United States

JEL Classification

  • O16
  • C22