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Inequality and Growth Revisited

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  • Figini, P

Abstract

In recent years, a vast literature on the links between inequality and growth has flourished. The emerging consensus is that equality enhances growth, but disagreement exists on the underlying mechanisms. In this paper, we aim to provide the reader with new empirical evidence from a cross sectional analysis of countries. First, we try to improve upon the accuracy of previous empirical models by using new data on inequality extracted from Deininger and Squire (1996). Second, we test alternative specifications of the relationship between growth, redistribution and inequality. Third, we test the relevance of the theoretical models proposed in the literature to explain the inequality-growth relationship. Results suggest that first, the link between inequality and growth is robust to measurement errors in inequality. Second, the fertility-education issue is the main explanatory factor of the link. Third, we find a non-linear relationship between inequality, redistribution and growth, which tends to confirm Bénabou's model (1996). However, there is also evidence to support an alternative explanation, in which there is reverse causality between redistribution and inequality: accordingly, countries would be considered unequal because of their weak redistributive policies.

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Bibliographic Info

Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number 992.

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Date of creation: 1999
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Handle: RePEc:tcd:tcduee:992

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Postal: Trinity College, Dublin 2
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References

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  1. Clarke, George R. G., 1992. "More evidence on income distribution and growth," Policy Research Working Paper Series 1064, The World Bank.
  2. Markus Knell, 1999. "Social Comparisons, Inequality, and Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 664-, December.
  3. 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.
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Citations

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Cited by:
  1. Matteo Cervellati & Joan Esteban & Laurence Kranich, 2007. "The Social Contract with Endogenous Sentiments," Working Papers 311, Barcelona Graduate School of Economics.
  2. Roland Benabou, 2004. "Inequality, Technology, and the Social Contract," NBER Working Papers 10371, National Bureau of Economic Research, Inc.
  3. Esfahani, Hadi Salehi & Ramirez, Maria Teresa, 2003. "Institutions, infrastructure, and economic growth," Journal of Development Economics, Elsevier, vol. 70(2), pages 443-477, April.
  4. Markus Knell, 1998. "Einkommensungleichheit und Wachstum," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 24(4), pages 443-474.
  5. Luiz de Mello & Erwin R. Tiongson, 2006. "Income Inequality and Redistributive Government Spending," Public Finance Review, , vol. 34(3), pages 282-305, May.
  6. Drosdowski, Thomas, 2005. "Democracy Deficits, Inequality and Pollution. A Politico-Economic Analysis," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-323, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  7. Drosdowski, Thomas, 2006. "Does Democratization Benefit the Environment in the Long-Run in the Presence of Inequality?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-347, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  8. Qin, Duo & Cagas, Marie Anne & Ducanes, Geoffrey & He, Xinhua & Liu, Rui & Liu, Shiguo, 2009. "Effects of income inequality on China's economic growth," Journal of Policy Modeling, Elsevier, vol. 31(1), pages 69-86.
  9. Grossmann, Volker, 2003. "Income inequality, voting over the size of public consumption, and growth," European Journal of Political Economy, Elsevier, vol. 19(2), pages 265-287, June.
  10. Vollrath, Dietrich, 2008. "Wealth Distribution and the Provision of Public Goods: Evidence from the United States," MPRA Paper 11534, University Library of Munich, Germany.
  11. Desdoigts, Alain & Moizeau, Fabien, 2001. "Multiple politico-economic regimes, inequality and growth," SFB 373 Discussion Papers 2001,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  12. Laura de Dominicis & Raymond J. G. M. Florax & Henri L. F. de Groot, 2008. "A Meta-Analysis On The Relationship Between Income Inequality And Economic Growth," Scottish Journal of Political Economy, Scottish Economic Society, vol. 55(5), pages 654-682, November.

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