Measuring the Social and Political Diversity and their Impact on Income Inequality
This paper studies the impact of social diversity and political structure on the income inequality of an economy. Paper studies the various measurements of political and social diversity by forming the indices for political coalition and social diversity. Effective number of political party index is constructed by forming the HHI (Herfindahl-Hirchman Index). Effective number of party shows the degree of government coalition. Fractionalization and polarization indices are constructed to measurethe social diversity and polarization. This paper discusses the impact of growth of various sectors on income inequality. Gini coefficient is used to measure the income inequality. Finally, Prais-Winsten method of regression is used to find the impact of social and political diversity and economic growth on income inequality. It is found that social diversity has a statistically significant positive impact on income inequality in short run while in long run it is negative.Social polarization has a negative impact on inequality but it is in short run, in long run, this impact is positive. Effective numbers of parties has short run negative significant impact on income inequality. The value added in agricultural sector, industrial sector and service sector are also important factors which influence the income inequality.
JEL classification - O11; Z12; O53; D72; D63; R11
Keywords - Effective number of political parties, Social Diversity, Polarization index, Fractionalization index, Gini coefficient.