Determinants of Income inequality in Pakistan

Abstract

The aim of this paper is to examine Pakistan's income inequalityin short run as well as in long run using time series yearly data from 1972-2018. This paper applies the time series econometrics for relationships of long run &short run. Saving, tax and income inequality are found on stationary at level while GDP, education and IMR are found stationary at 1st difference. The empirical results fully support the Auto Regressive & distributed lag Model analyses. The study concludes that the GDP, saving, education and infant mortality rate turn out to be very significant factors in determining the inequality in income. The results of the study show that GDP, education, tax and infant rate of mortality have positive effect whereas saving influence negatively with income inequality of Pakistan in the long run. Speed of adjustment or error term has value -0.446, shows the convergence of model to equilibrium in long run.At a policy level, the study that in order to reduce unequal distribution of income, the Government should adopt such type of strategies which is helpful in improving income distribution.