Inequality Dynamics: Evidence from Some European Countries

Using year-by-year measures of income distribution provided by the LIS dataset for eight continental Europe countries, this paper considers the recent literature on income inequality and growth to test the following propositions: does inequality converge during the process of economic growth? What are the variables that can influence this process? Are there any joint dynamics in income inequality and income levels, and which variable causes the other? On the one hand, the results seem to show mean-reversion in Gini coefficients in the analyzed sample, not only when 'absolute convergence' is taken into account, but also when other determinants of movements in income inequality, suggested by the literature, are added to the base regression. On the other hand, they point out that shocks to income can yield interesting short run dynamics in income distribution, whereas the reverse link, from inequality to income, is not well supported by the specification.