The Impact of the Business Cycles on Income Inequality in Selected Islamic Countries (Cup-FM Approach)

Income distribution and its deteminants are considered by policymakers and governments. Empirical evidence shows that this inequality reduces in expansion periods and increases in periods of recession. In this context, the main objective of this study is to evaluate the effect of business cycles on income inequality in developing and Islamic countries of the Group Eight (D8) during the period 19902012. For this purpose, a model has been designed based on the Kuznets hypothesis and with the presence of fundamental variables affecting income inequality with the business cycles variable. Extraction and characterization of the business cycle is performed by Cristiano Fitzgerald Band-pass filter (CF) (2003). Due to the crosssectional dependence between the variables the model used the Panel Cointegration with cross-sectional dependence analysis and finally the long-run relationship between the variables is measured by Continuously-updated and Fully-Modified method (Cup-FM) (Provided by Bai et al (2009)). The results show the negative impact of business cycles on income inequality in D8 countries, s. According to other results, Kuznets hypothesis cannot be rejected for the D8 countrie's economies. The share of government spending in GDP have equalizer effect and tax revenue share of GDP and inflation has been the unequalizer effect in income distribution for these countries