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Do Regional Macroeconomics Variables Influence the Income Inequality in Indonesia?

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  • Cut Risya Varlitya
  • Raja Masbar
  • Abd. Jamal
  • Muhammad Nasir

Abstract

This article examines the effects of government expenditures, regional GDP, regional minimum wages, employment rate, and poverty severity on income inequality by applying the system Generalized Method of Moments panel model to overcome the dynamic endogeneity problem from 2007 to 2020. The results show that government expenditure and an increase in the regional minimum wage for low-wage workers can reduce income inequality in both the short run and long run. Furthermore, high regional GDP and high levels of employment rate for workers with low skills can exacerbate the level of income inequality in the long run. However, reducing the severity of poverty has no effect on reducing inequality. This study provides policy recommendations to the government to improve basic public services and make various training skill programs, including ICT, in order to increase creativity and job opportunities for low-income people.

Suggested Citation

  • Cut Risya Varlitya & Raja Masbar & Abd. Jamal & Muhammad Nasir, 2023. "Do Regional Macroeconomics Variables Influence the Income Inequality in Indonesia?," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 180-199.
    • Handle: RePEc:bas:econst:y:2023:i:1:p:180-199
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    More about this item

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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