The Impacts of US State-Level Economic Policy Uncertainty on US State-Level Income Distribution: Asymmetric Approach

Abstract

This study aims to expand Bahmani-Oskooee and Hasanzade's research examining the impact of economic policy uncertainty (EPU) on income inequality in the US states. Our study differs from theirs as we use a newly calculated US state-level EPU index, whereas they used the US country-level EPU index in their previous work. While the linear ARDL model finds that the EPU has short-run effects on GINI in 15 US states, the nonlinear model finds it in 22 US states. Similarly, while the nonlinear model finds that EPU has a long-run impact on GINI in five US states, the linear model finds it only in one US state. However, when the CSD is allowed, the linear model finds that EPU impacts GINI in five US states in the long run. While our study finds that decreased uncertainty worsens income inequalities in Texas and Washington, Bahmani-Oskooee and Hasanzade find that uncertainty does not have long-run effects in these US states. Similarly, while we find that increased uncertainty improves inequality in Virginia, they also find worsening effects in this US state. Empirical findings reveal that state-level analysis discovers some hidden impacts of the EPU on GINI that we could not find in country-level analysis.