Explaining Income Inequalities : A Cross Sectional-Study of OECD Countries

Rising income inequality has become a global trend. It is already well established that pronounced income inequalities not only constrain future growth potential but are also accompanied by unequal opportunities that have inimical social consequences. Income inequalities exhibit considerable variations across OECD countries, and growth performance records clearly demonstrate that there does not have to be a trade-off between growth and equality. Understanding the drivers behind growing income inequalities is essential to determining an appropriate inclusive development strategy. In this study, the “Partial Least Square” method is used to predict the Gini-coefficient of income inequality, using cross-sectional data from 30 OECD countries. Factors identified as explaining cross-country variations in inequalities include the ‘Palma’ ratio, working poor, NEET youth, child poverty, and public expenditure on active employment programs. The evidence suggests that social and labor market policies can be effective in tackling poverty and inequality