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Income Inequality Is Not Harmful for Growth: Theory and Evidence

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Author Info
Li, Hongyi
Zou, Heng-fu

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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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Publisher Info
Article provided by Blackwell Publishing 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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  2. Drosdowski, Thomas, 2005. "Democracy Deficits, Inequality and Pollution. A Politico-Economic Analysis," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-323, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  3. Ali A. Ali & Ibrahim A. Elbadawi, 1999. "Inequality and the Dynamics of Poverty and Growth," CID Working Papers 32, Center for International Development at Harvard University. [Downloadable!]
  4. Ricardo Arguello, 2004. "Revisiting the Relationship between Income Distribution and Economic Growth," BORRADORES DE INVESTIGACIÓN 004336, UNIVERSIDAD DEL ROSARIO - FACULTAD DE ECONOMÍA. [Downloadable!]
  5. Ravallion, Martin, 2001. "Growth, inequality, and poverty : looking beyond averages," Policy Research Working Paper Series 2558, The World Bank. [Downloadable!]
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  6. Dollar, David & Kraay, Aart, 2001. "Growth is good for the poor," Policy Research Working Paper Series 2587, The World Bank. [Downloadable!]
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  7. Robert J. Barro, 1999. "Inequality, Growth, and Investment," NBER Working Papers 7038, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Donald S. Allen & Leonce Ndikumana, 1999. "Income inequality and minimum consumption: implications for growth," Working Papers 1999-013, Federal Reserve Bank of St. Louis. [Downloadable!]
  9. Dustin Chambers, 2005. "Inequality and Growth: A Semiparametric Investigation," Computing in Economics and Finance 2005 132, Society for Computational Economics. [Downloadable!]
  10. Hatipoglu, Ozan, 2008. "Patent, Inequality and Innovation-Driven Growth," MPRA Paper 7855, University Library of Munich, Germany. [Downloadable!]
  11. Lewis Davis, 2007. "Explaining the Evidence on Inequality and Growth: Informality and Redistribution," Contributions to Macroeconomics, Berkeley Electronic Press, vol. 7(1), pages 1498-1498. [Downloadable!] (restricted)
  12. Giuseppe Arbia & Laura De Dominicis & Gianfranco Piras, 2005. "The relationship between Regional Growth and Regional Inequality in EU and transition countries - a Spatial Econometric Approach," ERSA conference papers ersa05p168, European Regional Science Association. [Downloadable!]
  13. Hongyi Li & Danyang Xie & Heng-fu Zou, 2002. "Dynamics of Income Distribution," GE, Growth, Math methods 0210001, EconWPA. [Downloadable!]
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  14. Perry, Guillermo & Lopez , J. Humberto, 2008. "Inequality in Latin America : determinants and consequences," Policy Research Working Paper Series 4504, The World Bank. [Downloadable!]
  15. Briones, Roehlano M., 2000. "Property Rights Reform in Philippine Agriculture: Framework for Analysis and Review of Recent Experience," Discussion Papers DP 2000-29, Philippine Institute for Development Studies. [Downloadable!]
  16. Lewis S. Davis, 2004. "Explaining the Evidence on Inequality and Growth: Informality and Redistribution," DEGIT Conference Papers c009_032, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  17. Thomas Leoni & Wolfgang Pollan, 2003. "The Impact of Inequality on Economic Growth," WIFO Working Papers 211, WIFO. [Downloadable!]
  18. Rolf Maier, 2005. "External Debt and Pro-Poor Growth," Macroeconomics 0504031, EconWPA. [Downloadable!]
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