More evidence on income distribution and growth
Inequality is often regarded as a necessary evil that has to be tolerated to allow growth, says the author. The view that inequality is necessary for the accumulation of wealth, and contains the seeds of eventual increases in everyone's income, is evident in trickle down economic theories, where societal acceptance of inequality allows the rich to earn a greater rate of return on their assets. Others argue that inequality slows growth - because increased inequality causes more conflict over distributional issues, thereby encouraging greater economic intervention and higher taxes. According to the author, the empirical evidence shows that: Inequality is negatively, and robustly, correlated with growth. This result is robust to many different assumptions about the exact form of the cross-country growth regression. Although statistically significant, the magnitude of the relationship between inequality and growth is relatively small. Decreasing inequality from one standard deviation above to one standard deviation below the mean increases the long-term growth rate by about 1.3 percentage points a year. Inequality has a similar effect in democracies and non-democracies. When an interaction term between the type of regime and inequality is included in the base regression, it is insignificant at conventional significance levels. The cross-country data on inequality follows Kuznets'inverted-U shape. Care should be taken in interpreting these results. Although inequality is negatively correlated with growth, this does not necessarily imply that soak-the-rich policies will improve long-term growth. First, theoretical work on inequality and growth stresses thatthis negative correlation is caused by high levels of inequality provoking high levels of government economic intervention. Soak-the-rich policies may be less necessary where there is less inequality. Second, although the partial correlation is robust, the direction of causality has not been determined and the effects o
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Levine, Ross & Renelt, David, 1991.
"A sensitivity analysis of cross-country growth regressions,"
Policy Research Working Paper Series
609, The World Bank.
- Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
- Barro, R.J., 1989.
"Economic Growth In A Cross Section Of Countries,"
RCER Working Papers
201, University of Rochester - Center for Economic Research (RCER).
- Easterly, William & King, Robert & Levine, Ross & Rebelo, Sergio, 1991.
"How do national policies affect long-run growth? : a research agenda,"
Policy Research Working Paper Series
794, The World Bank.
- Easterly, W. & King, R. & Levine, R. & Rebelo, S., 1992. "How Do National Policies Affect Long-Run Growth? A Research Agenda," World Bank - Discussion Papers 164, World Bank.
- Leamer, Edward E, 1983.
"Let's Take the Con Out of Econometrics,"
American Economic Review,
American Economic Association, vol. 73(1), pages 31-43, March.
- Ram, Rati, 1988. "Economic development and income inequality: Further evidence on the U-curve hypothesis," World Development, Elsevier, vol. 16(11), pages 1371-1376, November.
- Ahluwalia, Montek S., 1976. "Inequality, poverty and development," Journal of Development Economics, Elsevier, vol. 3(4), pages 307-342, December.
- Papanek, Gustav F. & Kyn, Oldrich, 1986. "The effect on income distribution of development, the growth rate and economic strategy," Journal of Development Economics, Elsevier, vol. 23(1), pages 55-65, September.
- Persson, Torsten & Tabellini, Guido, 1991.
"Is Inequality Harmful for Growth? Theory and Evidence,"
Department of Economics, Working Paper Series
qt00x7n68q, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Torsten Persson & Guido Tabellini, 1991. "Is Inequality Harmful for Growth? Theory and Evidence," NBER Working Papers 3599, National Bureau of Economic Research, Inc.
- Torsten Persson and Guido Tabellini., 1991. "Is Inequality Harmful for Growth? Theory and Evidence," Economics Working Papers 91-155, University of California at Berkeley.
- Persson, Torsten & Tabellini, Guido, 1991. "Is Inequality Harmful for Growth? Theory and Evidence," CEPR Discussion Papers 581, C.E.P.R. Discussion Papers.
- Levi, Maurice D, 1973. "Errors in the Variables Bias in the Presence of Correctly Measured Variables," Econometrica, Econometric Society, vol. 41(5), pages 985-86, September.
- William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993.
"Good Policy or Good Luck? Country Growth Performance and Temporary Shocks,"
NBER Working Papers
4474, National Bureau of Economic Research, Inc.
- Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
- Alberto Alesina & Dani Rodrik, 1991.
"Distributive Politics and Economic Growth,"
NBER Working Papers
3668, National Bureau of Economic Research, Inc.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- McAleer, Michael & Pagan, Adrian R & Volker, Paul A, 1985.
"What Will Take the Con out of Econometrics?,"
American Economic Review,
American Economic Association, vol. 75(3), pages 293-307, June.
- Koenker, Roger, 1981. "A note on studentizing a test for heteroscedasticity," Journal of Econometrics, Elsevier, vol. 17(1), pages 107-112, September.
- Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-94, September.
- Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, vol. 75(3), pages 308-13, June.
- Danny Quah, 1992.
"Empirical cross-section dynamics in economic growth,"
Discussion Paper / Institute for Empirical Macroeconomics
75, Federal Reserve Bank of Minneapolis.
- Quah, Danny, 1993. "Empirical cross-section dynamics in economic growth," European Economic Review, Elsevier, vol. 37(2-3), pages 426-434, April.
- Danny Quah, 1992. "Empirical Cross-Section Dynamics in Economic Growth," FMG Discussion Papers dp154, Financial Markets Group.
- Summers, Robert & Heston, Alan, 1988. "A New Set of International Comparisons of Real Product and Price Levels Estimates for 130 Countries, 1950-1985," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(1), pages 1-25, March.
- Ghani, Ejaz, 1992. "How financial markets affect long run growth : a cross country study," Policy Research Working Paper Series 843, The World Bank.
- Lindert, Peter H. & Williamson, Jeffrey G., 1985. "Growth, equality, and history," Explorations in Economic History, Elsevier, vol. 22(4), pages 341-377, October.
- Barro, Robert J. & Sala-i-Martin, Xavier, 1992.
3451299, Harvard University Department of Economics.
- Adelman, Irma & Robinson, Sherman, 1989. "Income distribution and development," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 19, pages 949-1003 Elsevier.
- Koenker, Roger & Bassett, Gilbert, Jr, 1982. "Robust Tests for Heteroscedasticity Based on Regression Quantiles," Econometrica, Econometric Society, vol. 50(1), pages 43-61, January.
- Griliches, Zvi, 1986. "Economic data issues," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 3, chapter 25, pages 1465-1514 Elsevier.
- Garber, Steven & Klepper, Steven, 1980. "Extending the Classical Normal Errors-in-Variables Model," Econometrica, Econometric Society, vol. 48(6), pages 1541-46, September.
- Friedman, Milton, 1992. "Do Old Fallacies Ever Die?," Journal of Economic Literature, American Economic Association, vol. 30(4), pages 2129-32, December.
- Fields, Gary S, 1989. "Changes in Poverty and Inequality in Developing Countries," World Bank Research Observer, World Bank Group, vol. 4(2), pages 167-85, July.
- Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
When requesting a correction, please mention this item's handle: RePEc:eee:deveco:v:47:y:1995:i:2:p:403-427. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.