Economic policy uncertainty and income inequality: unveiling the effects of friendly business environment

Abstract

Recent pandemic in the form of COVID‐19 has been associated with increasing income inequalities because of high uncertainty around the globe. As a result, we examined the nexus between economic policy uncertainty (EPU) and inequality and how this relation is moderated by friendly business environment reflected by ease of doing business (EODB). To understand the relation among the different dimensions several techniques like fixed effects model, Driscoll and Kraay, and panel quantile regression were employed for a sample of 20 countries ranging for the period of 12 years. Our findings show that EPU contributes to higher levels of overall income inequality (Gini‐Index) and the results are heterogenous across countries, however the concentration of wealth among top 10% rich people gets reduced with increased EPU. Additionally, we find EODB moderating the impact of EPU on income inequality by mitigating the adverse effects of EPU on income inequality. Finally, we combined the results across different proxies and models to propose suggestive policy recommendations.