Essays on Australian Income Inequality

Abstract

<p>This thesis contains three empirical studies exploring income inequality and its impact on economic growth and productivity in Australia. The inequality-output nexus is examined using national, sub-national and gender-specific data calculated from Australian Taxation Office (ATO) statistics and data published by the Australian Bureau of Statistics (ABS).</p> <p>Chapter 2 calculates Gini coefficients for Australia as a whole and in each of the states and territories from 1942 to 2013. These newly created series reveal that although national and sub-national income inequality exhibit similar trends over time, there are important short-term variations across regions. State-level Gini coefficients are then used in panel regressions to estimate Australia’s inequality-growth nexus. This study concludes that rising income inequality has negative implications for economic growth, while additional investment in education can boost output growth in the long-run. These results support the notion that policymakers should address rising income inequality by implementing measures that support and enhance human capital accumulation given the long-run economic and social benefits.</p> <p>Following on from this finding, Chapter 3 examines how gender inequality affects productivity. To do this, gender wage gaps are calculated for all of Australia’s states and territories using Average Weekly Earnings data published by the ABS from 1982 to 2013. These data are then used as explanatory variables in four different models estimating the relationship between gender-based income inequality and productivity. Irrespective of the model chosen, it concludes that reducing gender income inequality has positive implications for economic growth that rival those associated with additional investment in human capital. This corroborates the conclusion of Chapter 2 and strengthens the case for policymakers to address rising inequality through additional investment in education.</p> <p>Motivated by the findings of Chapters 2 and 3, Chapter 4 examines the long-run relationship between inequality and real per capita income using gender-specific Gini coefficients from 1942 to 2013. Using taxation statistics, this chapter derives Gini coefficients for men, women and all taxpayers separately, which are then used to estimate the inequality–growth nexus controlling for within-gender differences in inequality. It concludes that models which allow for differences in gender inequality offer more explanatory power than those models where such differences are overlooked.</p> <p>This thesis argues that policymakers should not only concern themselves with income inequality for political and social reasons, but also because rising inequality has negative implications for economic growth. Rather than relying on redistributive income transfers which are potentially harmful to long-run productivity growth, this thesis proposes addressing inequality by implementing measures that promote human capital accumulation and economic mobility. Such policies may include greater funding for research and development or targeted investment in female education and training to help reduce gender-based occupational segregation.</p>