Convergence in Central and Eastern European countries income redistribution: Evidence from SPSM method

Abstract

This study is to investigate whether income inequality in nine Central and Eastern European (CEE) countries are converging or diverging using the nonlinear panel unit root tests Sequential Panel Selection Method (SPSM) over the period 1989 to 2015. We used the SPSM procedure that proposed by Chortareas and Kapetanios (2009) using Panel KSS unit root test (developed by Ucar and Omay (2009)) with a Fourier function in this paper. The SPSM is a competent method which controls for structural breaks, nonlinearity, heterogeneity and crosssection dependency. The empirical analysis of conventional unit root tests shows that income inequality is stationary or convergence for CEE countries. On the other hand, the empirical results from the SPSM also point out that the income distribution convergence holds true for nine CEE countries in the period of 1989 to 2015. The results show that income inequality converges even if control is provided for structural breaks, non-linearity, heterogeneity and cross-sectional dependence. Countries converge to a common level of income inequality. Our findings have some significant policy implications for macroeconomic policy, modelling and forecasting for these CEE countries.