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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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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. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  2. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  3. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-57, April.
  4. Atkinson, A-B, 1996. "Bringing Income Distribution in from the Cold," Economics Papers 117, Economics Group, Nuffield College, University of Oxford.
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