Partisan Conflict, Real Per Capita GDP and Inequality in the United States

The first part of this thesis examines the predictive power of a partisan conflict on income inequality. Our study contribute to the existing literature by using the newly introduced nonparametric causality-in-quantile testing approach to examine how political polarization in the Unites States affects several measures of income inequality and distribution overtime. The study uses annual time-series data between the periods 1917-2013. We find evidence in support of a dynamic causal relationship between partisan conflict and income inequality, except at the upper end of the quantiles. Our empirical findings suggest that a reduction in partisan conflict will lead to a more equal income distribution, but this requires that inequality is not exceptionally high. Then, we examine the relationship between income inequality and long-run economic growth has gained a growing attention in economic research for over decades. This study employed advanced time series techniques to examine the existence of an inverted U-shaped long-run relationship between income inequality and economic growth, using long-span time series data for the United States between the periods 1917 to 2012. The concepts of summability, balancedness and co-summability was advanced to analyze nonlinear long-run relations among stochastic processes. The empirical results find no evidence in support of nonlinear long-run (inverted U-shaped) relationship for the US, but findings from a vocal set of economists lends strong support and is the basis for the conclusions drawn by this study. Lastly, the third study examine the existing literature on the short-run and long-run impact of economic growth on income inequality has found that positive and negative output shocks have worsened income distribution in the United States. In this paper, we attempt to empirically examine the opposite, that is, the impact of positive and negative income inequality shocks on the real output level. Using the same time-series data, over the period 1917-2012, in a more comprehensive manner by employing six measures of income distribution, we examine the impact of an increase or decrease in income inequality on economic growth, using the nonlinear Autoregressive Distributed Lag (NARDL) approach. Our empirical result provide an evidence in support of a long-run asymmetric impact between income inequality and real output level, since the long-run coefficients on positive changes have positive signs, while the signs of those on negative changes are negative, indicating that a decrease or an increase in income inequality improves real output level in the US. Keywords: Partisan Conflict, Income Inequality, GDP per capita, Quantile Causality, Summability, Balancedness, Cosummability, Asymmetry, non-linear ARDL model, United States.