Islamic Modeling Analysis of Income Inequality in Indonesia: With a Vector Error Correction Model (VECM)

Abstract

This study aims to examine the factors that influence income inequality in Indonesia from an Islamic perspective. Income inequality is a significant economic problem and requires a holistic approach for deeper understanding and sustainable solutions. The type of data used is time series data with a research period of 1998–2022. The research model used is the Vector Error Correction Model (VECM) to measure the long-term and short-term relationships of the labor force, government expenditure, and human capital variables on income inequality. The results of the study show that there is a long-term relationship between the labor force and government budget variables and income inequality. In the short term, the labor force and human capital affect income inequality. The results of this study are expected to contribute to the literature on the study of income inequality in general and specifically in Indonesia, become a reference for the development of more inclusive and equitable economic policies, and enrich the literature on the implementation of Islamic economics in the context of alleviating income inequality