Evaluating the income inequality in the United States throughout the Reaganomics period: A socio-economic empirical analysis of the 1970s-1990s period

The rise in income inequality is the United States is a known and researched topic. The phenomenon started to increase starting 1970s. Meanwhile, the main hypothesis focuses on the neoliberalism ideology as the main factor in the income inequality rise. Reagan’s economic reforms based on supply-side theory resulted in higher production, investments, higher earnings and private consumer’s savings. However, it should be noted that the benefits of the Reagan’s administration economic programs should spur from the high-income population to the middle- and poor-income population. The hypothesis questions aim to answer which social layer benefited the most, if there are any long-term effects and if and how neoliberalism (in this thesis, Reaganomics) affected the income distribution in the U.S. during 1980s. In the theoretical part the main definitions of income inequality and neoliberalism are presented for better understanding of the topic. Followed by the causes and determinants of income inequality, explained in the context of Reaganomics. Lastly, the theoretical part will conclude with the Reaganomics influences on income inequality based on the appropriate literature. The practical part is a Markov-switching vector autoregressive model on different income share quintiles which aim to estimate the influence of two different regime on the income dynamics during the 1980s, as well the influence of other explanatory variables related to Reganomics.