The Relationship between Types of Political Regimes and Income Inequality in Pakistan

Abstract

Aim: Income inequality has emerged as a significant concern within the Pakistani economy, prompting extensive investigations across various dimensions. This study aims to explore the relationship between types of political regime and income inequality, specifically in Pakistan.

Methods: Time series data spanning from 1972 to 2019 were utilized, obtained from the World Bank, Polity IV Project, and the Handbook of Statistics on Pakistan Economy by the State Bank of Pakistan. To measure types of political regimes, the Polity index was employed, while the Gini coefficient served as the metric for income inequality. Additionally, this research considered several factors, including GDP per capita, the ratio of direct taxes to GDP, the percentage of government expenditure on education relative to GDP, and the percentage of government expenditure on community and social services relative to GDP, to control for their direct effects. The stationarity of the data was assessed using the augmented Dickey-Fuller test, while the autoregressive distributive lag (ARDL) model was employed to examine the cointegrating relationship among the variables in the model.

Results: The empirical findings from the estimation demonstrate a lasting negative correlation between the types of political regimes in Pakistan and wealth disparities in the short and medium term. The results highlight the notable detrimental effect of different political regimes on the nation's economic disparity.

Conclusion: A one percent increase in the Polity score is associated with a 0.45 percent long-term and a 0.25 percent short-term decrease in the Gini coefficient.

Recommendation: Pakistan should strive towards a stable democratic political framework and implement sustainable economic policies to effectively address income disparity and achieve a desirable level of income distribution.