10 An economist runs the following regression for both Hong

10. An economist runs the following regression for both Hong Kong and Swedem, where i refers to the identity of a son-father pair. He finds that B 0.03 for Hong Kong and - 0.05 for Sweden. It is also known that, for the duration studied, the Gini coefficient for Hong Kong is equl to 0.51 while its counterpart for Sweden is el to 0.30. Are the regression results consistent with the Gini coefficients?

Solution

Yes results are consistent.

Bcoz slope coefficient measures elasticity ,in hong kong, if father income increases by 1% , then son income rises by .03%

In Sweden , it increases by .05% , thus the income difference gap narrows more quickly in Sweden than in Hong kong.

So results show that income inequality is lower in Sweden , since G is less than in Hong Kong.

Increasing G implies higher income inequality

Thus gap between income of the individuals tends to be relatively higher in Hong Kong. Thus higher G, so regression results consistent