Empirical Analysis on the Determinants of Income Inequality in Korea

This paper reviews the trends and identifies the determinants of income inequality in Korea from 1980 to 2012. Both Kuznets’ hypothesis of inverted U-shaped relationship between income inequality and economic growth and Barro’s hypothesis of U-shaped relationship are not empirically supported. Macroeconomic index such as the government spending as a share of GNI was found to be statistically insignificant in affecting income inequality. The statistically significant negative estimate of the investment share in GDP shows that an increase in investment would decrease the income inequality. The statistically significant positive estimate of the variable for the share of the elderly in working population confirms the argument that the rise of aging population, which has been accelerating in Korea during the last two decades, is one of the important factors in widening the gap of