Macroeconomic and demographic factors affecting on income inequality in Sri Lanka: a regression analysis

Abstract

Income inequality is one of the major concern in the Sri Lankan economy for the last three decades. This research aims to identify the impact of macroeconomic, demographic and political economy factors on income inequality over the period of time 1990 to 2017. This research has used secondary data and analyzed by using Ordinary Least Square Model (OLS). According to the results, this study concludes that GDP per capita, CPI, education expenditure, inflation and manufacture have positive and significant impact while unemployment has a negative impact on income inequality in Sri Lanka. Although labour force negatively related to income inequality and it is not significant variable. Hence, this study concludes that estimated factors affect the income inequality of Sri Lanka. This study suggests that government must promote the policies to reduce the income inequality and to increase the employment level and income, especially in agriculture sector. And also, Policymakers should focus on promoting the monetary policy and allocating recourse efficiently for the sustainable growth of the country to reduce income inequality.