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Do Rising Top Incomes Lift All Boats?

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  • Dan Andrews
  • Christopher Jencks
  • Andrew Leigh

Abstract

Pooling data for 1905 to 2000, we find no systematic relationship between top income shares and economic growth in a panel of 12 developed nations observed for between 22 and 85 years. After 1960, however, a one percentage point rise in the top decile’s income share is associated with a statistically significant 0.12 point rise in GDP growth during the following year. This relationship is not driven by changes in either educational attainment or top tax rates. If the increase in inequality is permanent, the increase in growth appears to be permanent. However, our estimates imply that it would take 13 years for the cumulative positive effect of faster growth on the mean income of the bottom nine deciles to offset the negative effect of reducing their share of total income.

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Bibliographic Info

Paper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 641.

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Date of creation: Apr 2010
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Handle: RePEc:auu:dpaper:641

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Keywords: inequality; growth; income distribution; national income;

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References

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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Do rising top incomes mean higher growth?
    by Economic Logician in Economic Logic on 2009-12-02 17:01:00
  2. Har Rosenberg rätt om jämlikhet?
    by nonicoclolasos in Nonicoclolasos on 2010-03-09 06:00:08
  3. Hur påverkar ökad ojämlikhet tillväxten?
    by nonicoclolasos in Nonicoclolasos on 2009-12-03 16:06:36
  4. Inequality – It’s Bad…And It’s About to Get Way Worse
    by The Institute in INET Blog on 2013-09-13 18:21:07
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Cited by:
  1. Peter Hoeller, 2012. "Less Income Inequality and More Growth – Are they Compatible? Part 4. Top Incomes," OECD Economics Department Working Papers 927, OECD Publishing.
  2. Herzer, Dierk & Vollmer, Sebastian, 2013. "Rising top incomes do not raise the tide," Journal of Policy Modeling, Elsevier, Elsevier, vol. 35(4), pages 504-519.
  3. Michal Brzezinski, 2013. "Income polarization and economic growth," National Bank of Poland Working Papers, National Bank of Poland, Economic Institute 147, National Bank of Poland, Economic Institute.
  4. Josh Bivens & Lawrence Mishel, 2013. "The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 27(3), pages 57-78, Summer.
  5. Roine, Jesper & Vlachos, Jonas & Waldenström, Daniel, 2007. "The Long-run Determinants of Inequality: What Can We Learn from Top Income Data?," Working Paper Series, Research Institute of Industrial Economics 721, Research Institute of Industrial Economics, revised 30 Apr 2008.
  6. Santo Milasi, 2012. "Top Income Shares and Budget Deficits," CEIS Research Paper 249, Tor Vergata University, CEIS, revised 08 Aug 2013.
  7. Raymundo M. Campos-Vazquez & Emmanuel Chavez & Gerardo Esquivel, 2013. "Growth is (really) good for the (really) rich," Serie documentos de trabajo del Centro de Estudios Económicos, El Colegio de México, Centro de Estudios Económicos 2013-09, El Colegio de México, Centro de Estudios Económicos.
  8. Risso, W. Adrián & Punzo, Lionello F. & Carrera, Edgar J. Sánchez, 2013. "Economic growth and income distribution in Mexico: A cointegration exercise," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 708-714.
  9. Dash, Bharatee Bhushan & Mukherjee, Sacchidananda, 2013. "Does Political Competition Influence Human Development? Evidence from the Indian States," Working Papers, National Institute of Public Finance and Policy 13/118, National Institute of Public Finance and Policy.

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