Regional integration and income inequality: a synthetic counterfactual analysis of the European Monetary Union

Author:

Bouvet Florence1

Affiliation:

1. Sonoma State University

Abstract

Abstract In Europe, it is quite common for public opinions and national politicians to blame economic insecurity and rising inequality on deeper regional integration within the European Union (EU), and especially on the euro. There is, however, no empirical research that clearly identifies the euro as the cause of the recent increase in income inequality. Using the synthetic counterfactual methodology developed by Abadie and Gardeazabal (2003), I estimate what would have happened to inequality in both gross and net income within euro-area countries, had these countries not switched to the single currency. In most countries (especially peripheral countries), without the euro, gross-income inequality would have been lower, while net-income inequality would have been higher. These results imply that, while deeper economic integration might have exacerbated gross income inequality, lower interest rates allowed countries to counteract these disparities with their social welfare programmes.

Publisher

Oxford University Press (OUP)

Subject

Management, Monitoring, Policy and Law,Economics and Econometrics

Reference42 articles.

1. ‘Using Synthetic Controls: Feasibility, Data Requirements, and Methodological Aspects’;Abadie;forthcoming in Journal of Economic Literature,2019

2. ‘The Economic Costs of Conflict: A Case Study of the Basque Country’;Gardeazabal;American Economic Review,2003

3. ‘Synthetic Control Methods for Comparative Case Studies: Estimating the Effect of California’s Tobacco Control Program’;Diamond;Journal of American Statistical Association,2010

4. ‘Comparative Politics and the Synthetic Control Method’;American Journal of Political Science,,2015

5. ‘How Does Fiscal Consolidation Impact on Income Inequality?’;Agnello;Review of Income and Wealth,2014

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