Does Income Inequality Degrade Human Capital? Assessing the Effects of Income Inequality on Access to Public Goods & Human Health, 1960-2020

Abstract

Many argue that income inequality produces ill-health because of the psycho-social effects of relative deprivation. Others argue that persistent inequalities might distort politics in ways that benefit the powerful, reducing human-capital-enhancing public goods, such as health, that benefit the poor. Yet others, argue that the relationship between income level, income growth, inequality, and the way in which public goods affect health and inequality are complex, multi-directional, and mutually dependent. Using the standardized Gini data for a large number of countries over a period of 50 years, the results confirm the complex interconnection between income inequality and the provision of public goods and human health outcomes. Most importantly, the results show that it is per capita income level, not its distribution, that consistently and uniformly associates with conditions that improve population health and wellbeing. The substantive effects of income level dwarf those of the Gini when child and adult mortality are estimated. Interestingly, Granger causality tests suggest that the causal arrow may point from improvements in human health to income inequality rather than the other way around. The results, thus, tentatively support the philosophical position advocating equality of opportunity over equality of outcomes, while promoting growth-enhancing economic policies that reduce absolute deprivations. Higher income, not its distribution per se, seems to produce human wellbeing.