The Role of Remittances in Shaping Income Inequality in Lebanon Before and After the Crisis: An Empirical Analysis Using Macroeconomic and Financial Perspectives

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Abstract
This study investigates the impact of remittances on income inequality in Lebanon using annual time-series data for the years 2000–2023. Applying Johansen’s cointegration test, with financial development (FD), GDP, and household consumption expenditure (HCE) as the control variables, the study examines the long-run and short-run relationship between remittances and inequality. The study also considers the moderating impacts of FD and HCE to account for their indirect role in the remittance–inequality relationship. Dynamic relations are also examined by using impulse response functions (IRFs) and Forecast Error Variance Decomposition (FEVD) analyses. The long-run model estimates validate that remittances and income inequality are significantly and negatively related, i.e., increased remittance receipts serve to reduce income inequality in Lebanon. Remittance effects, however, are statistically insignificant in the short run. Interestingly, the results reveal that financial development weakens the remittances’ inequality-reducing effect, dampening their impact. Contrarily, a higher household consumption expenditure slightly strengthens the inequality-reducing effect of remittances. A comparison between the pre- and post-2019 periods reveals that the explanatory strength of remittances weakened during times of economic crisis, since the function of remittances was different during times of economic distress. Based on these findings, this study recommends that Lebanon not only promote financial development but also focus on financial inclusion, improve social safety nets, and provide inclusive economic growth to maximize remittance inflow benefits and efficiently reduce inequality.

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