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Income inequality and growth: A regime-switching approach

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  • Nektarios Aslanidis

    (Department of Economics, University of Crete, Greece)

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    Abstract

    This paper explores the methodology of regime-switching in the analysis of the income inequality-economic growth relationship. The underlying idea is that when some income determinant passes a certain threshold introduces a new relationship between inequality and income and/or income determinants. There are three implications of the estimated models. First, inequality decreases with economic growth when government consumption as share of GDP is ‘low’. Second, in a ‘low’ inflation environment government consumption increases inequality. Third, in countries with ‘strict’ rule of law openness to international trade and government consumption are associated with lower inequality, while financial development implies higher inequality.

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    File URL: http://economics.soc.uoc.gr/wpa/docs/Aslanidis.pdf
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    Bibliographic Info

    Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0406.

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    Length: 8 pages
    Date of creation: 02 Feb 2004
    Date of revision:
    Handle: RePEc:crt:wpaper:0406

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    Related research

    Keywords: Kuznets curve; regime-switching; growth determinants; thresholds;

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    References

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    1. Bruno, Michael & Ravallion, Martin & Squire, Lyn, 1996. "Equity and growth in developing countries : old and new perspectives on the policy issues," Policy Research Working Paper Series 1563, The World Bank.
    2. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
    3. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
    4. T. Paul Schultz, 1998. "Inequality in the distribution of personal income in the world: How it is changing and why," Journal of Population Economics, Springer, vol. 11(3), pages 307-344.
    5. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
    6. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S119-36, Suppl. De.
    7. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
    8. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
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