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Income inequality, financial development, and macroeconomic fluctuations

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  • Murat F. Iyigun
  • Ann L. Owen

Abstract

We examine the relationship between income inequality and variability in aggregate consumption growth. In high-income countries, greater income inequality appears to be associated with more volatility in consumption growth, whereas in lower-income countries, higher levels of income inequality tend to be associated with less volatility. We present evidence that variability in real GDP growth is also related to income inequality in the same way. Our results suggest that the level of financial development may help to explain why the distribution of income affects the short-run variability of consumption and output differently in high-income countries than in low-income countries. Copyright 2004 Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 114 (2004)
Issue (Month): 495 (04)
Pages: 352-376

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Handle: RePEc:ecj:econjl:v:114:y:2004:i:495:p:352-376

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  1. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  2. Abhijit V. Banerjee & Esther Duflo, 2000. "Inequality and Growth: What Can the Data Say?," NBER Working Papers 7793, National Bureau of Economic Research, Inc.
  3. Deaton, Angus, 1992. "Understanding Consumption," OUP Catalogue, Oxford University Press, number 9780198288244, September.
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Cited by:
  1. Amparo Castelló-Climent & Ana Hidalgo-Cabrillana, 2011. "The Role of Educational Quality and Quantity in the Process of Economic Development," CEP Discussion Papers dp1087, Centre for Economic Performance, LSE.
  2. Soares, Rodrigo R. & Assunção, Juliano J. & Goulart, Tomás F., 2012. "A note on slavery and the roots of inequality," Journal of Comparative Economics, Elsevier, vol. 40(4), pages 565-580.
  3. Ho-Chuan Huang & WenShwo Fang & Stephen M. Miller, 2012. "The Effect of Growth Volatility on Income Inequality," Working papers 2012-09, University of Connecticut, Department of Economics.
  4. Muhammad Tariq Majeed & Ronald MacDonald, 2010. "Distributional and Poverty Consequences of Globalization: A Dynamic Comparative Analysis for Developing Countries," Working Papers 2010_22, Business School - Economics, University of Glasgow.
  5. Klomp, Jeroen & de Haan, Jakob, 2009. "Political institutions and economic volatility," European Journal of Political Economy, Elsevier, vol. 25(3), pages 311-326, September.
  6. Amparo Castell�-Climent, 2010. "Channels through Which Human Capital Inequality Influences Economic Growth," Journal of Human Capital, University of Chicago Press, vol. 4(4), pages 394 - 450.
  7. Muhammad, Shahbaz & Tiwari, Aviral & Reza, Sherafatian-Jahromi, 2012. "Financial Development and Income Inequality: Is there any Financial Kuznets curve in Iran?," MPRA Paper 40899, University Library of Munich, Germany, revised 26 Aug 2012.

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