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Is Income Inequality Endogenous In Regional Growth?

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Author Info

  • Yohannes G. Hailu

    ()
    (United Nations Economic Commission for Africa)

  • Mulugeta S. Kahsai

    (West Virginia University)

  • Tesfa G. Gebremedhin

    ()
    (West Virginia University)

  • Randall W. Jackson

    (West Virginia University)

Abstract

This study focuses on testing the relationship between income inequality and economic growth within counties in the United States, and the channels through which the effects of a relationship are observed. Based on a system of equations estimation, the empirical results confirm the hypotheses that income inequality has a growth-dampening effect, that income inequality is endogenous to regional growth, and that the channels through which income inequality determines growth are adjustments at the regional level, such as migration and changes in employment and incomes. The results have numerous policy implications. The noted forces can be utilized as policy instruments to mitigate income inequality and its growth dampening effects, because a) as income inequality is endogenous, its equilibrium level can be internally determined within a regional growth process, b) since traditional income inequality mitigating policies have an indirect effect on overall regional growth, they may have unintended indirect effects on income inequality, and c) regional growth adjustment also equilibrates income inequality.

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Bibliographic Info

Article provided by Journal of Income Distribution in its journal Journal of Income Distribution.

Volume (Year): 20 (2011)
Issue (Month): 3-4 (September-December)
Pages: 43-56

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Handle: RePEc:jid:journl:y:2011:v:20:i:3-4:p:43-56

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Keywords: income inequality; economic growth; Gini coefficient; growth modeling; economic policy;

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References

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  1. Mills, Edwin S. & Price, Richard, 1984. "Metropolitan suburbanization and central city problems," Journal of Urban Economics, Elsevier, vol. 15(1), pages 1-17, January.
  2. Rupasingha, Anil & Goetz, Stephan J. & Freshwater, David, 2006. "The production of social capital in US counties," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(1), pages 83-101, February.
  3. Roback, Jennifer, 1982. "Wages, Rents, and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1257-78, December.
  4. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  5. Li, Hongyi & Zou, Heng-fu, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-34, October.
  6. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
  7. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
  8. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  9. Abhijit V. Banerjee & Esther Duflo, 2000. "Inequality and Growth: What Can the Data Say?," NBER Working Papers 7793, National Bureau of Economic Research, Inc.
  10. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
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