DOES SCHOOLING REDUCE INCOME INEQUALITY? PANEL EVIDENCE FROM REGENCIES AND CITIES IN WEST KALIMANTAN, INDONESIA, 2016–2025

Abstract: Human capital theory predicts that wider schooling lowers income inequality, yet empirical evidence for Indonesian regions is contradictory. This study examines the effect of education, measured by mean years of schooling, on income inequality, measured by the Gini ratio, in the 14 regencies and cities of West Kalimantan Province over 2016–2025 (140 observations), using BPS data. The common, fixed, and random effect models are estimated, and the preferred model is selected with the Chow, Hausman, and Lagrange Multiplier tests. Across regencies, schooling and inequality are positively associated (r = 0.70 for regency means), driven mainly by Pontianak City, which has both the highest schooling and the highest inequality; the common and random effect models therefore show a positive and significant coefficient. However, the tests favour the fixed effect model, in which schooling has a negative but insignificant effect on the Gini ratio (β = −0.0065; cluster-robust p = 0.508). The result is robust to year effects, the exclusion of outliers, and lagged schooling. The hypothesis that education reduces inequality is therefore not supported: the cross-regional link reflects persistent regional characteristics rather than the effect of rising schooling within regions. Policy should complement the expansion of schooling with measures that improve its quality and link it to productive local employment, especially in high-inequality areas. Keyword: Education, Gini ratio, Income inequality, Panel data, West Kalimantan.