Cross-country analysis of aggregate markups and their impact on income inequality.

BACKGROUND

This study investigates the connection between aggregate markups and income inequality, exploring how market power affects inequality in developed, emerging, and developing economies.

METHOD: The study examines data from 12 countries from 1997 to 2016 using a panel data approach. A two-way fixed-effects specification is estimated after panel diagnostics for cross-sectional dependence, model selection, unit roots and cointegration. The analysis focuses on the Gini index, lagged markups, trade openness, GDP per capita, tax revenue and R&D expenditure.

RESULTS

Higher lagged markups are associated with greater income inequality, with the relationship particularly relevant for emerging and developing economies. Diagnostic checks support the use of fixed effects over random effects, while unit-root and cointegration tests indicate that the levels model should be interpreted as a long-run relationship rather than as a purely short-run association.

CONCLUSION

The study shows how market power, fiscal redistribution and trade openness interact across diverse economic systems. The findings support competition policy and progressive taxation as complementary tools, while acknowledging that further dynamic panel and error-correction modelling would strengthen causal interpretation.