Assessing the Relationship Between Inequality and Economic Growth in Portugal

Study the inequality effects on the economy has a capital importance to understand current social dynamics. As Economics is a Social science, it has a Political component at its genesis. Therefore, understanding the phenomenon of inequality, its impacts on well-being, social mobility and unraveling its dynamics with economic growth, increasing knowledge and contributing to the competent bodies and legislators who base their economic strategy more efficiently. Our main question of this research is to understand the relationship between economic growth and inequality in Portugal in the period between 1973 and 2021. The present work we explore long run times-series from 1973 to 2021 about the portuguese economy in an Autoregressive Distributed Lag (ARDL) model and Error Correction Mechanism (ECM) to examine the long-run relationships and short-run dynamics among economic growth (GDP per capita), Gini coefficient and other relevant macroeconomic variables. The results points to a negative correlation between GINI Index and Economic Growthboth at long-run). This suggests that economic growth is hampered by the gini index presented by Portugal, suggesting that economic growth in this aspect is not moving towards sustainability, also the model may indicate that income inequality is more a consequence of economic growth than a cause. This can happen if economic growth is driving the creation of economic opportunities for a significant portion of the population, while other factors (such as social policy, income redistribution, etc.) are at play in determining inequality.