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Inequality and Growth: The Neglected Time Dimension

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  • Halter, David
  • Oechslin, Manuel

Abstract

The empirical literature on the relationship between inequality and growth offers a contradictory assessment: Estimators based on time-series (differences-based) variation indicate a strong positive link while estimators (also) exploiting the cross-sectional (levelbased) variation suggest a negative relationship. Using an expanded dataset, the present paper confirms this conflicting pattern — and reconciles it on the basis of a simple model. We argue that the differences-based methods are prone to reflect the mostly positive shortor medium-run implications of inequality while the level-based estimators also incorporate more negative long-term consequences. Thus, the latter estimates come close to reflecting the adverse overall impact of inequality in the long run.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8033.

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Date of creation: Sep 2010
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Handle: RePEc:cpr:ceprdp:8033

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Keywords: Growth; Inequality; Long-run Effects; Medium-run Effects;

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References

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Cited by:
  1. Ziesemer, Thomas, 2011. "What Changes Gini Coefficients of Education? On the dynamic interaction between education, its distribution and growth," MERIT Working Papers 053, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

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