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Nexus Between Income Inequality, Crime, Inflation and Poverty: New Evidence from Structural Breaks for Pakistan

Ahad, Muhammad (2016): Nexus Between Income Inequality, Crime, Inflation and Poverty: New Evidence from Structural Breaks for Pakistan. Published in: International Journal of Economics and Empirical Research , Vol. 4, No. 3 (March 2016): pp. 133-145.

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Abstract

This paper examines the relationship between income inequality, crime, poverty and inflation over the period of 1984-2012 for Pakistan. Augmented Dickey-Fuller and Phillips-Perron unit root tests have been applied to test the stationarity of data. Perron structural break unit root test is used to test the stationary of data in the presence of single unknown structural break. The series are found to be stationary at first difference or I(1). The newly developed combine cointegration approach has been taken to test cointegration between variables. The problem of structural break is solved by using ARDL bound testing approach. Their results confirm the existence of the long run relationship between income inequality, crime, poverty and inflation. In long run, poverty, income inequality and inflation have found to be positive and significant impact on crime but, in short run, only income inequality has positive and significant impact on crime. The robustness of causal analysis is tested by Innovative Accounting Approach (IAA). The results explain that 23 percent of crime is explaining by shocks stimulating in income inequality and 42 percent of income inequality is explaining by shocks ruining in crime. This study opens up new insights for policy makers.

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