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Inequality and Economic Growth in the UK

Author

Listed:
  • Xiaoliang Yang

    (Zhongnan University of Economics and Law)

  • Patrick Minford

    (Cardiff University
    CEPR)

  • David Meenagh

    (Cardiff University)

Abstract

This paper analyses the effect of wealth inequality on UK economic growth in recent decades with a heterogeneous-agent growth model where agents can enhance individual productivity growth by undertaking entrepreneurship. The model assumes wealthy people are more able to afford the costs of entrepreneurship. Wealth concentration therefore stimulates entrepreneurship among the rich and so aggregate growth, whose fruits in turn are largely captured by the rich. This process creates a mechanism by which inequality and growth are correlated. The model is estimated and tested by Indirect Inference and is not rejected. Policy-makers face a trade-off between redistribution and growth.

Suggested Citation

  • Xiaoliang Yang & Patrick Minford & David Meenagh, 2021. "Inequality and Economic Growth in the UK," Open Economies Review, Springer, vol. 32(1), pages 37-69, February.
    • Handle: RePEc:kap:openec:v:32:y:2021:i:1:d:10.1007_s11079-020-09598-z
    DOI: 10.1007/s11079-020-09598-z
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    2. Dong, Xue & Minford, Patrick & Meenagh, David & Yang, Xiaoliang, 2023. "Bounded rational expectation: How it can affect the effectiveness of monetary rules in the open economy," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    3. Yang, Xiaoliang & Barros, Lucy & Matthews, Kent & Meenagh, David, 2023. "The dynamics of redistribution, inequality and growth across China s regions," Cardiff Economics Working Papers E2023/12, Cardiff University, Cardiff Business School, Economics Section.

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    More about this item

    Keywords

    Inequality; Growth; Heterogeneous-agent; Entrepreneurship; Indirect Inference;
    All these keywords.

    JEL classification:

    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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