Abstract

Purpose. Comparable data on distribution of family income provide reference point
for determining economic performance of any country, opportunity to assess effects of income inequality and poverty drivers that are either country- or region-specific. This study
analysed the effectiveness of composite indices of public spending on family benefits, labour
productivity, macroeconomic performance indicators and moderating factors in reducing
income inequality and poverty gap in the Group of Seven (G7) countries from 1980 to 2019.
 

Methodology. The study employed fixed effects Least Squares regression model
in panel environment within the framework of empirical econometric methodologies. The
composite indices comprised public spending on family benefits in cash and kind, unemployment allowance payments, tax on personal income, labour productivity, harmonised
unemployment rate, consumer price index, real GDP growth rate, GDP per capita and per
hour worked, fertility rate and trade. After graphical analysis of the data, order of integration was via unit root tests. Hausman test was carried out to choose between fixed and random effects models. Subsequently, parameters of the models were estimated and evaluated
for significance at the 0.05 critical level.
 

Findings. The results showed that percentage changes in income inequality and
poverty gap indices differed for same percentage change in components of the composite indices. Some variable-specific percentage changes in income inequality and poverty gap were
statistically significant, while others were not. However, the overall percentage changes was
statistically significant. The paper concluded that while some specific effectiveness of the
explanatory variables in reducing income inequality and poverty gap was not significant,
their joint effectiveness significantly reduced poverty. Therefore, it is pertinent that familyoriented fiscal policy thrusts should be strengthened and sustained so as to continually reduce income inequality and, ultimately, narrow poverty gap in the countries.
 

Limitations. The study considered the G7 countries for a period of 40 years. The
limitations were that the variables considered to influence income inequality and poverty
gap in the countries were both exhaustive. Also, the results were conditioned to the method
used, and different methods can alternatively be used by other researchers and the results
compared with this.
 

Originality. The study is original research paper. It has neither been published in
any other peer-reviewed journal not under consideration for publication by any other journal.