Top

Journal of Economics and Finance

Published in:

09-10-2018

Schooling and income inequality in the long-run

Authors: Tarkan Cavusoglu, Oguzhan Dincer

Published in: Journal of Economics and Finance | Issue 3/2019

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

We estimate the long-run cointegrating relationship between schooling and income inequality using annual data from 48 contiguous U.S. states between 1946 and 2000. Our study contributes to the literature in several ways in terms of data and empirical methodology. First, we take into account integration and cointegration properties of the data and estimate the cointegrating relationship between schooling and income inequality using Fully Modified OLS (FMOLS) following Pedroni (2000, 2001). Second we investigate the direction of the causality. Using several different measures of income inequality, we find that an increase in the average level of schooling decreases income inequality in the long-run and (Granger) causality runs from schooling to income inequality, not the other way around.

previous article Cigarette smuggling: using the shadow economy or creating its own?

next article The effects of role models on college graduation rates

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

For a meta analysis of schooling and income inequality see Abdullah et al. (2005).

See Sylwester (2002b) for a theoretical model of public spending on education and income inequality.

CCE does not correct for endogeneity.

Atkinson (1970).

Turner et al. (2007) estimates the average years of schooling in the labor force for each state using a perpetual inventory method following Barro and Lee (1993) and Baier et al. (2006).

Unfortunately, we are unable to control for several independent variables used in studies investigating income inequality such as share of population living in urban areas and share of female headed families in population because of data unavailability. Data used in income inequality studies are mostly from the Current Population Survey (CPS) of the Census Bureau and state level data are available only after 1977.

See Amos (1988), Ram (1991), Piketty and Saez (2003), and Kim et al. (2011).

See Ram (1984), Park (1996), and De Gregorio and Lee (2002).

Abdullah A, Doucouliagos H, Manning E (2005) Does education reduce income inequality? A meta-regression analysis. J Econ Surv 29(2):301–316CrossRef

Amos O (1988) Unbalanced regional growth and regional income inequality in the latter stages of development. Reg Sci Urban Econ 18(4):549–566CrossRef

Arellano M, Bond S (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Rev Econ Stud 58(2):277–297CrossRef

Atkinson A (1970) On the measurement of inequality. J Econ Theory 2(3):244–263CrossRef

Baier SL, Dwyer GP, Tamura R (2006) How important are capital and total factor productivity for economic growth?. Econ Inq 44(1):23–49CrossRef

Barro RJ, Lee J-W (1993) International comparisons of educational attainment. J Monet Econ 32(3):363–394CrossRef

Bergh A, Fink G (2008) Higher education policy, enrollment, and income inequality. Soc Sci Q 89(1):217–235CrossRef

Bergh A, Nilsson T (2010) Do liberalization and globalization increase income inequality? Eur J Polit Econ 26(4):488–505CrossRef

Blundell R, Bond S (1998) Initial conditions and moment restrictions in dynamic panel data models. J Econ 87(1):115–143CrossRef

Bourguignon F, Morrison C (1990) Income distribution, development, and foreign trade. Eur Econ Rev 34(6):113–1132CrossRef

Braun D (1988) Multiple measurements of U.S. income inequality. Rev Econ Stat 70(3):398–405CrossRef

Brown RL, Durbin J, Evans JM (1975) Techniques for Testing the Constancy of Regression Relationships over Time. J R Stat Soc Ser B 37(2):149–192

Chiswick BR (1968) The average level of schooling and the intra-regional inequality of income: a clarification. Am Econ Rev 58(3):495–500

Chiswick BR (1971) Earnings inequality and economic development. Q J Econ 85(1):21–39CrossRef

De Gregorio J, Lee J-W (2002) Education and income inequality: new evidence from cross-country data. Rev Income Wealth 48(3):395–416CrossRef

Engle RF, Granger CWJ (1987) Co-integration and error correction: representation, estimation, and testing. Econometrica 55(2):251–276CrossRef

Frank M (2009) Inequality and growth in the United States: evidence from a state level panel of income ineqaulity measures. Econ Inq 47(1):55–68CrossRef

Granger CWJ (2001) Some recent developments in a concept of causality. In: Ghysels E, Swanson NR, Watson MW (eds) Essays in econometrics, volume II: collected papers of Clive W. J. Granger. Cambridge University Press, New York, pp 71–83

Greene W (2012) Econometric analysis. Prentice Hall, Upper Saddle River

Im KS, Pesaran MH, Shin Y (2003) Testing for unit roots in heterogeneous panels. J Econ 115(1):53–74CrossRef

Keller K (2010) How can education policy improve income distribution?: an empirical analysis of education stages and measures on income inequality. J Dev Areas 43(2):51–77CrossRef

Kim D-Y, Huang H-C, Lin S-C (2011) Kuznets hypothesis in a panel of states. Contemp Econ Policy 29(2):250–260CrossRef

Knight JB, Sabot RH (1983) Educational expansion and the Kuznets effect. Am Econ Rev 73(5):1132–1136

Kuznets S (1955) Economic growth and income inequality. Am Econ Rev 45(1):1–28

Kuznets S (1963) Quantitative aspects of the economic growth of nations: VIII. Distribution of income by size. Econ Dev Cult Chang 11(2):1–80CrossRef

Levin A, Lin C-F, Chu C-HJ (2002) Unit root tests in panel data; asymptotic and finite-sample properties. J Econ 108(1):1–24CrossRef

Park KH (1996) Educational expansion and educational inequality on income distribution. Econ Educ Rev 15(1):51–58CrossRef

Pedroni P (1999) Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxf Bull Econ Stat 61(1):653–670CrossRef

Pedroni P (2000) Fully-modified OLS for heterogeneous cointegrated panels. In: Baltagi B (ed) Nonstationary panels, panel cointegration and dynamic panels, advances in econometrics, vol 15. JAI Press, Amsterdam, pp 93–130CrossRef

Pedroni P (2001) Purchasing power parity tests in cointegrated panels. Rev Econ Stat 83(4):727–731CrossRef

Pedroni P (2004) Panel cointegration; asymptotic and finite sample properties of pooled time series tests, with an application to the PPP hypothesis. Economet Theor 20(3):597–625CrossRef

Pesaran H (2006) Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica 74(4):967–1012CrossRef

Pesaran H, Smith R (1995) Estimating long run relationships from dynamic heterogeneous panels. J Econ 68(1):79–114CrossRef

Phillips P, Hansen B (1990) Statistical inference in instrumental variables regression with I(1) processes. Rev Econ Stud 57(1):99–125CrossRef

Piketty T, Saez E (2003) Income inequality in the United States, 1913–1998. Q J Econ 118(1):1–39CrossRef

Ram R (1984) Population increase, economic growth, educational inequality, and income distribution: some recent evidence. J Dev Econ 14(3):419–428 AprilCrossRef

Ram R (1989) Can educational expansion reduce income inequality in less-developed countries? Econ Educ Rev 8(2):185–189CrossRef

Ram R (1991) Kuznets inverted-U hypothesis: evidence from a highly developed country. South Econ J 57(4):1112–1123CrossRef

Roodman D (2009) A note on the theme of too many instruments. Oxf Bull Econ Stat 71(1):135–158CrossRef

Saikkonen P (1991) Asymptotically efficient estimation of cointegration regressions. Economet Theor 7(1):1–21CrossRef

Schultz TW (1963) The economic value of education. Columbia University Press, New York

Stock JH, Watson MW (1993) A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica 61(4):783–820CrossRef

Sylwester K (2002a) Can education expenditures reduce income inequality? Econ Educ Rev 21(1):43–52CrossRef

Sylwester K (2002b) A model of public education and income inequality with a subsistence constraint. South Econ J 69(1):144–158CrossRef

Turner C, Tamura R, Mulholland SE, Baier S (2007) Education and income of the states of the United States: 1840-2000. J Econ Growth 12(2):101–158CrossRef

Westerlund J (2005) A panel CUSUM test of the null of cointegration. Oxf Bull Econ Stat 67(2):231–262CrossRef

Winegarden CR (1979) Schooling and income distribution: evidence from international data. Economica 46(181):83–87CrossRef

Xiao Z, Phillips PCB (2002) A CUSUM test for cointegration using regression residuals. J Economet 108(1):43–61CrossRef

Title: Schooling and income inequality in the long-run
Authors: Tarkan Cavusoglu
Oguzhan Dincer
Publication date: 09-10-2018
Publisher: Springer US
Published in: Journal of Economics and Finance / Issue 3/2019
Print ISSN: 1055-0925
Electronic ISSN: 1938-9744
DOI: https://doi.org/10.1007/s12197-018-9459-5

Springer Professional

Abstract

Please log in to get access to your license.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Other articles of this Issue 3/2019

Keep calm and consume? Subjective uncertainty and precautionary savings

Which sentiments do US investors follow when trading ADRs?

An evaluation of chapter 11 bankruptcy filings in a competing risks framework

Are common stocks a hedge against inflation in emerging markets?

The growth of government, trust in government, and evidence on their coevolution

Cigarette smuggling: using the shadow economy or creating its own?