Economic freedom and income inequality: further evidence from 58 countries in the long-run

Abstract

This study employs panel data for 58 countries from 1980-2010, to investigate the dynamic relationship between economic freedom and income inequality. Both linear and non-linear (Panel Smooth Threshold Regression) cointegration estimation methods are used to identify a long-run equilibrium relationship between the overall economic freedom index and its components, and income inequality. The linear long-run parameter estimates for the entire panel of countries show that the association is negative, while the non-linear long-run parameter estimates indicate that above a threshold point the association between economic freedom and income inequality is negative, while below this threshold point the association is positive.