B. S. NAZAMUDDIN
Senior Lecturer, Faculty of Economics and Business, Universitas Syiah Kuala, Banda Aceh, Indonesia
Lecturer, Faculty of Islamic Economics and Business, Universitas Islam Negeri Ar-raniry, Banda Aceh, Indonesia
The main purposes of our study are to investigate the effect of goods & services spending (GSS) and social spending (SS) on income inequality (GR). Using a panel data set of 26 provinces in Indonesia from 2005 to 2015, panel vector autoregressive and Granger causality test are employed to explore the causal relationship of the variables. The study found out that the SS has a negative and significant effect on GR at the 2-period horizon. The GR has a positive and significant effect on the GSS at the 4-period horizon, but negative and significant effects at the 3-period horizon. The result of the Granger causality test indicates that there is a unidirectional causality running from GSS to SS, and bidirectional causality exists between GR and SS, and between GR and GSS.
Keywords: Income inequality, goods and services spendings, social spendings, Panel Vector Autoregressive, and Granger Causality test.
JEL classification: D33, H53, I38