Examining the impact of personal freedom on income inequality: Evidence from Sub-Saharan Africa and Western European regions

Abstract

Rising income inequality has recently garnered intensive attention owing to its significance in theory and practice. This has rendered the mechanism through which inequality can be understood, even from a microscopic perspective, to institute proper policies that curtail it important. We contribute to the literature by examining the effect of freedom on income inequality using data from 34 least-free and 18 most-free countries from 2000 to 2020 in Sub-Saharan Africa and Western Europe, respectively. A novel fixed-effects panel quantile regression econometric estimator was employed, and the findings showed a non-linear relationship between personal freedom and income inequality for both regions. Again, both regions reported an inverse relationship between personal freedom and income inequality within the medium-run quantiles. However, a positive relationship was reported in the short-run and long-run quantiles of Sub-Saharan Africa and Western Europe, respectively, whereas the inverse was the same. Finally, the significant adverse relationship was more dominant in Western Europe, implying that high levels of personal freedom in the region explain the low levels of income inequality compared to Sub-Saharan Africa, which has lower levels of personal freedom and higher income inequality. Concerning the findings, it is recommended that policymakers and governments of least- and most-free regions institutionalise personal liberties that support human capital development and establish mechanisms to implement enacted freedoms.