Economic development and income inequality. A European case of study

This work studies the relationship between economic development and income inequality in 29 European countries over the period 1995 to 2018. To measure economic development GDP per capita has been used. To measure income inequality 4 different proxies have been used: the Gini coefficient and the share of income received by the top 1%, the top 10%, and the bottom 50% income earners. Furthermore, 6 control variables have been added to the analysis, those variables are: GDP per capita growth (annual %), inflation measured by consumer prices (annual %), GDP gross domestic savings (% of GDP), urban population (% of total population) and total general government expenditure (% of GDP). To test for the effect a total amount of 24 linear mixed effect models have been produced following a sequential strategy for the variable selection process. The results obtained shows that there is a negative significant relationship between economic development and income inequality. Also provides empirical evidences between the link of the control variables and income inequality. Overall, GDP per capita increases leads to increases in income inequality, before and after introducing the control variables.