Causality between Per Capita Real GDP and Income Inequality in the U.S.: Evidence from a Wavelet Analysis
Social Indicators Research, online November 12, 2016
26 Pages Posted: 20 Aug 2016 Last revised: 26 May 2018
Date Written: August 19, 2016
This study applies wavelet coherency analysis to examine the relationship between the U.S. per capita real GDP and six income inequality measures over the period 1917 to 2012. Wavelet analysis allows the simultaneous examination of correlation and causality between the two series in both the time and frequency domains. Our findings provide robust evidence of positive correlation between the growth and inequality across frequencies. Yet, directions of causality vary across frequencies and evolve with time. In the time-domain, the time-varying nature of long-run causalities implies structural changes in the two series. These findings provide a more thorough picture of the relationship between the U.S. per capita real GDP and inequality measures over time and frequency, suggesting important implications for policy makers.
Keywords: Income, Inequality, Wavelet analysis, U.S.
JEL Classification: C49, D31
Suggested Citation: Suggested Citation