The effects of income inequality on life expectancy across the EU : a panel data analysis

Abstract

This dissertation investigates the relationship between income inequality, as measured by the Gini Coefficient, and life expectancy across the European Union member states via Panel Data Analysis. The model that is built and estimated in this study comprises both contemporaneous income inequality as well as income inequality that is lagged by one year. Total Healthcare Expenditure per capita and Education Attainment are included as control variables in the model, with these variables being measured in Purchasing Power Parity Dollars and the number of years spent in formal education respectively. The Panel Data model is estimated for the period starting in 2003 and ending in 2017 by first using the Pooled Ordinary Least Squares method and subsequently via the more reliable Fixed Effects method in order to ensure the validity of the results obtained. In order to control for socio-economic elements that are difficult to adequately capture though control variables, the Panel Data model is restructured and reestimated across six sub-categorizations that organise groups of countries according to geographical position, relative Gross Domestic Product as well as the relative ethnic fractionalization of the population. To investigate in further detail the relationship between income inequality and life expectancy in the EU, a second line of investigation is conducted that is focused on a country by country Ordinary Least Squares Regression analysis and deeper Panel Data analysis. The results of the Panel Data analysis indicate that both Healthcare Expenditure per capita and Education Attainment have significant roles in determining life expectancy in the EU, although the strength of this influence may vary according to geographic, ethnic and national wealth factors. Initially, the results do not pin down the existence of a negative relationship between income inequality and life expectancy as per the Wilkinson Hypothesis. The results of the second line of investigation strongly indicate the existence of such a negative relationship between income inequality and life expectancy for Belgium, Estonia, Latvia, Portugal, the Netherlands and the United Kingdom. The final part of this dissertation outlines the policy implications of these results whilst also proposing avenues for future research on the topic.