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Income Inequality and Macroeconomic Volatility: An Empirical Investigation

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  • Richard Breen
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    Abstract

    Recently, there has been a resurgence in the interest in the determinants of income inequality across countries. This paper adds to this literature by examining the role of one further explanatory variable: macroeconomic volatility. Using a cross-section of developed and developing countries, we regress income inequality on volatility, defined as the standard deviation of the rate of output growth. We find that greater volatility increases the Gini coefficient and the income share of the top quintile, while it reduces the share of the other quintiles. The other variable that seems to play an important role is relative labour productivity, supporting previous findings.

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    File URL: http://www.nuff.ox.ac.uk/economics/papers/1999/w20/VI3.pdf
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    Bibliographic Info

    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 1999-W20.

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    Date of creation: 01 Jul 1999
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    Handle: RePEc:oxf:wpaper:1999-w20

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    Related research

    Keywords: income inequality; output volatility; cross-country regressions;

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    1. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
    2. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
    3. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May.
    4. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
    5. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March.
    6. Bourguignon, Francois & Morrisson, Christian, 1998. "Inequality and development: the role of dualism," Journal of Development Economics, Elsevier, vol. 57(2), pages 233-257.
    7. Chen, Shaohua & Datt, Gaurav & Ravallion, Martin, 1994. "Is Poverty Increasing in the Developing World?," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 40(4), pages 359-76, December.
    8. Perotti, Roberto & Alesina, Alberto, 1996. "Income Distribution, Political Instability, and Investment," Scholarly Articles 4553018, Harvard University Department of Economics.
    9. Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-51, December.
    10. Alberto Alesina & Roberto Perotti, 1993. "Income Distribution, Political Instability, and Investment," NBER Working Papers 4486, National Bureau of Economic Research, Inc.
    11. Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
    12. Bourguignon, F. & Morrisson, C., 1989. "Income Distribution, Development and Foreign Trade: A Cross-Sectional Analysis," DELTA Working Papers 89-05, DELTA (Ecole normale supérieure).
    13. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
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    Cited by:
    1. Gul, Adnan, 2008. "Is external debt an effective way of bringing economic reforms?," MPRA Paper 10979, University Library of Munich, Germany.
    2. Maier, Rolf, 2005. "External Debt and Pro-Poor Growth," Proceedings of the German Development Economics Conference, Kiel 2005 23, Verein für Socialpolitik, Research Committee Development Economics.
    3. Gul, Adnan, 2008. "Pakistan’s Public Debt: The shocks and aftershocks," MPRA Paper 11427, University Library of Munich, Germany.
    4. Rolf Maier, 2005. "Exchange Rate Regimes and Pro-Poor Growth," International Finance 0504008, EconWPA.
    5. Daniele Checchi, 2001. "Education, Inequality and Income Inequality," STICERD - Distributional Analysis Research Programme Papers 52, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    6. Rolf Maier, 2005. "External Debt and Pro-Poor Growth," Macroeconomics 0504031, EconWPA.

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