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Inequality and Growth Revisited

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Figini, P

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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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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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Find related papers by JEL classification:
O1 - Economic Development, Technological Change, and Growth - - Economic Development
H5 - Public Economics - - National Government Expenditures and Related Policies
D3 - Microeconomics - - Distribution

References listed on IDEAS
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  1. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-98, December. [Downloadable!] (restricted)
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  2. Alesina, Alberto & Perotti, Roberto, 1994. "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review, Oxford University Press, vol. 8(3), pages 351-71, September.
  3. Chiu, W Henry, 1998. "Income Inequality, Human Capital Accumulation and Economic Performance," Economic Journal, Royal Economic Society, vol. 108(446), pages 44-59, January. [Downloadable!] (restricted)
  4. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
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  5. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October. [Downloadable!] (restricted)
  6. Aghion, Philippe & Bolton, Patrick, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Blackwell Publishing, vol. 64(2), pages 151-72, April. [Downloadable!] (restricted)
  7. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 35-52, January. [Downloadable!] (restricted)
  8. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May. [Downloadable!] (restricted)
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  9. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Blackwell Publishing, vol. 60(4), pages 755-76, October. [Downloadable!] (restricted)
  10. Saint-Paul, Gilles & Verdier, Thierry, 1993. "Education, democracy and growth," Journal of Development Economics, Elsevier, vol. 42(2), pages 399-407, December. [Downloadable!] (restricted)
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  11. Partridge, Mark D, 1997. "Is Inequality Harmful for Growth? Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1019-32, December. [Downloadable!] (restricted)
  12. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, Oxford University Press, vol. 10(3), pages 565-91, September.
  13. 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. [Downloadable!] (restricted)
  14. Aghion, Philippe & Bolton, Patrick, 1992. "Distribution and growth in models of imperfect capital markets," European Economic Review, Elsevier, vol. 36(2-3), pages 603-611, April. [Downloadable!] (restricted)
  15. Benhabib, Jess & Rustichini, Aldo, 1996. " Social Conflict and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 125-42, March.
  16. Persson, Torsten & Tabellini, Guido, 1992. "Growth, distribution and politics," European Economic Review, Elsevier, vol. 36(2-3), pages 593-602, April. [Downloadable!] (restricted)
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  17. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September. [Downloadable!] (restricted)
  18. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Equivalence Scale Relativities and the Extent of Inequality and Poverty," Economic Journal, Royal Economic Society, vol. 102(414), pages 1067-82, September. [Downloadable!] (restricted)
  19. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June. [Downloadable!] (restricted)
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  20. Perotti, Roberto, 1992. "Income Distribution, Politics, and Growth," American Economic Review, American Economic Association, vol. 82(2), pages 311-16, May. [Downloadable!] (restricted)
  21. Dahan, Momi & Tsiddon, Daniel, 1998. " Demographic Transition, Income Distribution, and Economic Growth," Journal of Economic Growth, Springer, vol. 3(1), pages 29-52, March. [Downloadable!] (restricted)
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  22. Sala-i-Martin, Xavier, 1997. "I Just Ran Two Million Regressions," American Economic Review, American Economic Association, vol. 87(2), pages 178-83, May. [Downloadable!] (restricted)
  23. Perotti, Roberto, 1994. "Income distribution and investment," European Economic Review, Elsevier, vol. 38(3-4), pages 827-835, April. [Downloadable!] (restricted)
  24. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  25. Paolo Figini, 1998. "Inequality Measures, Equivalence Scales and Adjustment for Household Size and Composition," Economics Technical Papers 988, Trinity College Dublin, Department of Economics. [Downloadable!]
  26. Markus Knell, 1999. "Social Comparisons, Inequality, and Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 664-, December.
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  27. Paolo Figini, 1998. "Measuring Inequality: On the Correlation of Indices," Economics Technical Papers 987, Trinity College Dublin, Department of Economics.
  28. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, vol. 47(2), pages 403-427, August. [Downloadable!] (restricted)
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  29. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Frederick VAN DER PLOEG, 2004. "DO SOCIAL POLICIES HARM EMPLOYMENT? Second-best effects of taxes and benefits on labor markets," Economics Working Papers ECO2004/11, European University Institute. [Downloadable!]
  2. Erwin Tiongson & Luiz de Mello, 2003. "Income Inequality and Redistributive Government Spending," IMF Working Papers 03/14, International Monetary Fund. [Downloadable!]
  3. Drosdowski, Thomas, 2006. "Does Democratization Benefit the Environment in the Long-Run in the Presence of Inequality?," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-347, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  4. Roland Benabou, 2004. "Inequality, Technology, and the Social Contract," NBER Working Papers 10371, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Vollrath, Dietrich, 2008. "Wealth Distribution and the Provision of Public Goods: Evidence from the United States," MPRA Paper 11534, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Drosdowski, Thomas, 2005. "Democracy Deficits, Inequality and Pollution. A Politico-Economic Analysis," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-323, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
  7. Matteo Cervellati & Joan Esteban & Laurence Kranich, 2006. "The Social Contract with Endogenous Sentiments," IZA Discussion Papers 2312, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  8. Volker Grossmann, 2002. "Income Inequality, Voting Over the Size of Public Consumption, and Growth," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
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