Income Inequality in the EU – Dynamic Panel Model

Abstract

The article aims at examination of the shape of relationship between income inequality and the level of economic development measured by GDP per capita in 27 European Union countries in the period of 2004-2014. It also aims at identification of determinants of income inequality. Specifically, we test for the existence of an inverted U-shaped curve, as it is predicted by the standard Kuznets hypothesis, and J-shaped curve following the approach adopted by Deutsch and Silber (2004) and Anand and Kanbur (1993). The data come from Eurostat EU-SILC database (European Union Statistics on Income and Living Conditions), World Bank and International Monetary Fund. In the EU-27 group of countries we contradict the Kuznets hypothesis – our results provide evidence for a U-shaped, rather than the inverted U relationship. It also follows from our analysis that our data cover only the descending part of the U, that is a shape of inverted J.