Income Inequality in the United Kingdom: Long-Run Equilibrium and Nonlinear Distributional Dynamics

Income inequality remains a persistent structural challenge in advanced economies, with important consequences for economic stability, social cohesion, and the effectiveness of public policy. This study investigates the determinants of income inequality in the United Kingdom over the period 1980–2021 by combining ARDL, FMOLS, and NARDL approaches to assess long-run equilibrium relationships and potential nonlinear distributional effects. The ARDL bounds test confirms the presence of a stable long-run cointegrating relationship between the Gini index and its socioeconomic determinants, indicating that fiscal conditions, labour market dynamics, economic development, and income structure move together over time. The FMOLS estimates show that GDP per capita and unemployment are positively associated with inequality, whereas public social spending, government expenditure on education, tax revenue, and the income share of the fourth quintile are negatively related to the Gini index in the long run. These results underline the importance of redistribution, human capital investment, and labour market stability in moderating income disparities. The NARDL estimates suggest directionally different responses to positive and negative changes in the upper-middle-income share. Positive changes are associated with lower inequality (−0.931), while negative changes are associated with higher inequality (0.232); however, neither effect is statistically significant. The Wald test likewise fails to reject long-run symmetry (χ2(1) = 0.212, p = 0.646). Overall, the findings support a stable long-run inequality framework while indicating only limited evidence of asymmetric distributional adjustment in the United Kingdom.