Asymmetric Impact of Inflation and Unemployment on Income Inequality: The Case of Turkey

Abstract

Income inequality is a major economic problem for all developed or developing countries. Income inequality can be international, or among different regions within the country, even among individuals. Turkey is also known to be confronted with this problem and possible to see differences in income between different regions. Therefore, understanding income inequality and reasons that lie behind the problem became the primary research interests of the literature. In macroeconomic perspective, unemployment and inflation are two interconnected economic variables that may affect income inequality. Many of the researchers have tried to examine the impact of inflation and unemployment on income inequality and analyzed the role of government in controlling inflation, unemployment, and income. Certainly, parts of the macroeconomic aims which the government struggles to accomplish the economic growth, full employment, and stable domestic price level. These aims are pursued in order to advance mass welfare. Therefore, the purpose of this study is to contribute to the literature using the asymmetric model to examine the impact of inflation and unemployment on income inequality in Turkey utilizing annual data. In order to examine this impact, Nonlinear Autoregressive Distributed Lag(NARDL) model was used to analyze the nonlinear relationships between variables. It is investigated the asymmetric relationship between the variables and estimated short and long term coefficients. Accordingly, the light of the conclusion of the current study should introduce new ideas to policymakers which promote economic growth and development in the country so that income inequality can be reduced.