The impact of education on income inequality : a panel data analysis

Abstract

This study aims to analyse the impact of education on income inequality. From a Keynesian perspective, income inequality is detrimental to growth as it leads to a reduction in aggregate demand and output as well as to declining prospects for sustained growth. Within this context, education continues to be seen as a crucial factor when studying inequality, especially through its effect on earnings and skills as well as in its function in transmitting intergenerational disparities. The method employed in this study is one based on empirical analysis and a regression model is constructed with the aim to determine the impact of education on income inequality. The three variables for education used in this analysis are the number of ESL, education expenditure and the number of graduates. Moreover, a panel data analysis is used which incorporates the 28 Member States of the EU over a twelve year period, ranging from 2000 to 2011. The findings suggest that education does not have a significant impact on income inequality. This result is not surprising due to the complex relationship between these two variables and the conflicting results found in the literature. However, it is also important to point out that this study was subject to a limited time period as well as to a number of other limitations. As a result, by the implementation of a longer time series this analysis can be reinforced.