Inequality and savings: a reassesment of the relationship in cointegrated panels

The effect of income inequality on savings and consumption has remained an open empirical issue despite several decades of research. Results obtained in this study indicate that income inequality and private consumption are both I(1) nonstationary variables that are cointegrated, and inequality has had a negative effect on private consumption in Central-European and Nordic countries. Results for Anglo-Saxon countries are inconclusive. These findings suggest that previous empirical research may have produced biased results on the effect of inequality on savings by assuming that inequality would be a stationary variable.