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Income Inequality Is Not Harmful for Growth: Theory and Evidence

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  • Li, Hongyi
  • Zou, Heng-fu

Abstract

The paper shows that income inequality may theoretically lead to higher economic growth if public consumption enters the utility function. Empirically, baseline estimations and a sensitivity analysis show that income inequality is positively, and most of the time significantly, associated with economic growth. These findings stand in sharp contrast to the negative association between inequality and growth propounded by Alesina and Rodrik and by Persson and Tabellini. Copyright 1998 by Blackwell Publishing Ltd

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Development Economics.

Volume (Year): 2 (1998)
Issue (Month): 3 (October)
Pages: 318-34

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Handle: RePEc:bla:rdevec:v:2:y:1998:i:3:p:318-34

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  1. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March.
  2. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  3. Greenwood, J. & Jovanovic, B., 1990. "Financial Development, Growth, And The Distribution Of Income," University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers 9002, University of Western Ontario, The Centre for the Study of International Economic Relations.
  4. Robert E. Hall, 1988. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
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