| Abstract [eng] |
The main goal of this master's thesis is to identify the determinants of income inequality. The literature review defines the problem of income inequality in Lithuania, its impact, measurement methods, factors determining it and their impact, and econometric methods for conducting time series analysis. The author found that income inequality is considered to be income differences in the economy between any identifiable entities. Unequal income distribution, most often measured by the Gini index, is a relevant problem that affects such economic and social factors as economic growth, spending, income, health, crime, social mobility. The author reviewed the change in income inequality in Lithuania from 1999 to 2021, as well as Lithuania's position among other European countries in 2023 and found that income inequality (measured by the Gini index) in Lithuania ranges between 31% and 38% and is one of the highest in Europe. Based on the work of other authors, the author found that the factors determining income inequality are natural resources, economic growth (GDP), international trade, investment, unemployment rate, inflation, level of democracy in the country, level of education, and population growth. All these factors are usually studied using time series data and vector autoregression (VAR) and error correction (VECM) models applied to them. After conducting an empirical study, the author found that the impact of various economic and social factors on income inequality is fluctuating and depends on the period and the applied analysis methods. The impact of natural resources appears to be unstable, and economic growth usually increases income inequality. International trade increases inequality in the short term but decreases it in the long run. The impact of investment was also fluctuating, and the unemployment rate, contrary to much of the literature, is a source of statistically significant impact. Inflation had a positive impact on inequality. Social factors – democracy, education and population growth – increased inequality in the short term, but their impact became negative in the long run. The author also noticed that some factors have different effects on income inequality, depending on which model they were included in, as well as what other factors were. The author's recommendations for the future are to expand the study to include data from another country or longer time-series. |
