Socio-Economic Status, Savings and Income Inequality in Nigeria: The Behavioral Mechanism Approach

This study examined the impacts of socioeconomic status and savings on income inequality, to verify the transitional changes in socioeconomic status and saving rate, which in turn may affect the level of income inequality in Nigeria. The study employed the Behavioral Mechanism Approach (BMA), incorporating the Structural Vector autoregressive (SVAR) technique, which uses impulse response function and variance error decomposition to trace the behaviors of the chosen variables over time. The empirical results show that peoples’ socioeconomic status negatively affected average income in the economy through their flair for conspicuous consumption. It also shows that socioeconomic status increases income inequality through a reduction in returns to capital and through changes in the levels of savings in the economy. The study recommends that the government may need to invest in behavioral changing policies such as education and enlightenment that can change conspicuous consumption. These can enhance income accumulation and alleviate inequality in the economy.

Keywords:

Economic Status Effects , Income Inequality , Impulse Response , Variance Decomposition , Nigeria