Vol 3, No 2 (2015)
Testing the Relationship between Economic Freedom and Income Inequality in the USA
Allen L. Webster
Abstract
The Gini coefficient is used to examine the impact of economic freedom on income inequality among the 50 US states. The degree of economic freedom is provided by the Fraser Institute in Vancouver, Canada. A fixed-effect model based on panel data from 2000-2013 is estimated to determine if differences exist among the four census regions identified by the US Census Bureau. The findings clearly suggest that those states characterized by higher levels of economic freedom exhibit greater income equality. A Dickey-Fuller test for stationary revealed the need for first-differencing and a Granger-causality test concluded that uni-directional causality existed between income distribution and economic liberty.
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Keywords
Gini Coefficient; Economic Freedom; Income Distribution; Fixed-Effects Models; Granger Causality
Publication information
Volume 3, Issue 2
Year of Publication: 2015
ISSN: 1857 - 8721
Publisher: EDNOTERA
How to cite
Webster, L.A.: Testing the Relationship between Economic Freedom and Income Inequality in the USA. Journal of Applied Economics and Business, Vol 3, No. 2, 17-38. (2015)