Global Income Inequality and Savings: A Data Science Perspective

TL;DR

This paper investigates the co-evolution of income inequality and savings across countries using data science techniques, including correlation matrices, multidimensional scaling, and regression analysis, to understand their relationship.

Contribution

It introduces a data science framework to analyze the relationship between income inequality and savings, applying correlation, mapping, and regression methods to global economic data.

Findings

Higher savings can moderate income inequality in small or closed economies.

The empirical analysis supports the theoretical model linking savings and inequality.

Countries show diverse patterns in inequality and savings dynamics.

Abstract

A society or country with income equally distributed among its people is truly a fiction! The phenomena of socioeconomic inequalities have been plaguing mankind from times immemorial. We are interested in gaining an insight about the co-evolution of the countries in the inequality space, from a data science perspective. For this purpose, we use the time series data for Gini indices of different countries, and construct the equal-time cross-correlation matrix. We then use this to construct a similarity matrix and generate a map with the countries as different points generated through a multi-dimensional scaling technique. We also produce a similar map of different countries using the time series data for Gross Domestic Savings (% of GDP). We also pose a different, yet significant, question: Can higher savings moderate the income inequality? In this paper, we have tried to address this question through another data science technique - linear regression, to seek an empirical linkage between the income inequality and savings, mainly for relatively small or closed economies. This question was inspired from an existing theoretical model proposed by Chakraborti-Chakrabarti (2000), based on the principle of kinetic theory of gases. We tested our model empirically using Gini index and Gross Domestic Savings, and observed that the model holds reasonably true for many economies of the world.