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Abstract
The main objective of this study is to identify the factors causing income inequality among individuals in Ethiopia from 1991 to 2022 based on secondary data. The study used an autoregressive distributed lag model to examine the long-run and short-run relationships between income inequality and explanatory variables. In the long run, the empirical results showed that education and foreign direct investment had an antagonistic relationship and significantly affected income inequality. In contrast, the inflation rate, real interest rate, trade openness, and population growth rate had positive effects. The results of the short run stated that government expenditure and trade openness had a significant impact and were negatively associated with income inequalities. The real interest, population growth, unemployment, and inflation rates had substantial effects and were positively associated with income inequalities. Income inequality and inflation have a positive relationship in the long and short run. Rising inflation reduces the real wages of workers, especially those with lower incomes. Therefore, the National Bank of Ethiopia should pursue stable macroeconomic policies that will lower inflation, or the government of Ethiopia should enhance the wages of low-income and poor earners.
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