Income inequality in OECD countries with increasing public debt and varying economic performance

Abstract

This master’s thesis focuses on changes in income inequality in OECD countries and how this has changed depending on public indebtedness and economic performance. Increase in public debt levels has happened simultaneously with the increase in income inequality since 1980’s. However, the theoretical and empirical models related to these issues have shown remarkable divergence in results. This thesis analyses disposable income and market inequality Gini coefficients in OECD countries and it is related to domestic and external indeptedness of public sector and growth.

This thesis provides evidence that domestic and external debt have dissimilar effects to income inequality with public finance from external debt improving equality although plausible harmful for economic growth. Increasing indebtedness has thus been associated with lower disposable income inequality although market inequality has grown. These results indicate the complicated way that domestic and external debt relates to economic behaviour.

Introduction to the subject is provided in chapter 1. Chapter 2 provides background and broader history to economic inequality. Chapter 3 discusses differences between income and wealth inequality. Chapter 4 deals with historical development of inequality. Chapter 5 provides theories regarding inequality. Chapter 6 is similar but regarding public debt. Chapter 7 deals with previously done research and hypotheses. And in chapter 8 a regression analysis is used to analyze the effect of public debt to income inequality and their combined effect on economic performance. Final chapter summarizes conclusions and provides further research ideas.