The connection between inequality, democracy and governance: Evidence from panel cointegration and Granger non-causality approach

Sadeghi Amroabadi, Behrouz; Mahmoudinia, Davoud; Hosseini Kondelaji, Mir Hadi

doi:10.48308/jep.2026.242937.1258

The connection between inequality, democracy and governance: Evidence from panel cointegration and Granger non-causality approach

Articles in Press

Document Type : Original Article

Authors

¹ Visiting Scholar, Faculty of Business, Athabasca University, Edmonton, Canada; Assistant Professor of Economics, Faculty of Economics and Social Sciences, Shahid Chamran University of Ahvaz, Ahvaz, Iran.

² Department of Economics, Vali-e-Asr University of Rafsanjan , Rafsanjan, Iran

³ Faculty of Economics and Administrative Sciences, Arak University, Arak, Iran

10.48308/jep.2026.242937.1258

Abstract

Income inequality has been widely recognized as one of the most pressing socio-economic challenges for policymakers around the world. Strong democratic institutions may contribute to a more equitable distribution of income by promoting transparency and guaranteeing accountability. This study investigates the predictive causality and long-term relationship between democracy, governance, and inequality across three country income groups: high-income, middle-income, and low-income, using data from 2006 to 2023. The analysis employs Panel co-integration, FMOLS and DOLS methodology, the Dumitrescu-Hurlin (2012) panel causality test, Pooled Mean Group regression and regression with Driscoll-Kraay standard errors. The Dumitrescu–Hurlin test suggests bidirectional predictive causality between democracy and inequality. However, these findings should be interpreted as statistical predictability rather than structural causation. Furthermore, long-term regression results (FMOLS and DOLS) reveal substantial heterogeneity across income groups. Specifically, democracy variable is associated with lower income inequality in high-income economies, whereas its effect appears positive in middle- and low-income economies.

Keywords

References

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