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- Title
PITFALLS IN TESTING FOR COINTEGRATION BETWEEN INEQUALITY AND THE REAL INCOME.
- Authors
Gueye, Ghislain N.; Kim, Hyeongwoo; Sorek, Gilad
- Abstract
Frank (2009) constructed a comprehensive panel of state-level income inequality measures using individual tax filing data from the Internal Revenue Service. Employing an array of cointegration exercises for the data, he reported a positive long-run relationship between income inequality and the real income per capita in the United States. This article questions the validity of his findings. First, we suggest a misspecification problem in his approach regarding the order of integration in the inequality index, which shows evidence of nonstationarity only for the post-1980 data. Second, we demonstrate that his findings are not reliable because the panel cointegration test he used requires cross-section independence, which is inappropriate for the U.S. state-level data. Employing panel tests that allow cross-section dependence, we find no evidence of cointegration between inequality and the real income. ( JEL D31, O40)
- Subjects
UNITED States; UNITED States. Internal Revenue Service; INCOME inequality; TAXATION; REAL income; ECONOMIC research
- Publication
Economic Inquiry, 2017, Vol 55, Issue 2, p941
- ISSN
0095-2583
- Publication type
Article
- DOI
10.1111/ecin.12398