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Income Inequality and Economic Growth: Evidence from American Data

  • Panizza, Ugo

While most cross-country studies find a negative relationship between income inequality and economic growth, studies that use panel data suggest the presence of a positive relationship between inequality and growth. This paper uses a cross-state panel for the United States to assess the relationship between inequality and growth. Using both standard fixed effects and GMM estimations, this paper does not find evidence of a positive relationship between inequality and growth but finds some evidence in support of a negative relationship between inequality and growth. The paper, however, shows that the relationship between inequality and growth is not robust and that small differences in the method used to measure inequality can result in large differences in the estimated relationship between inequality and growth. Copyright 2002 by Kluwer Academic Publishers

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Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 7 (2002)
Issue (Month): 1 (March)
Pages: 25-41

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Handle: RePEc:kap:jecgro:v:7:y:2002:i:1:p:25-41
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  1. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
  2. Oded Galor & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," GE, Growth, Math methods 0410005, EconWPA.
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  8. Li, Hongyi & Zou, Heng-fu, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," Review of Development Economics, Wiley Blackwell, vol. 2(3), pages 318-34, October.
  9. Easterly, William, 2000. "the middle class consensus and economic development," Policy Research Working Paper Series 2346, The World Bank.
  10. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
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  13. Partridge, Mark D, 1997. "Is Inequality Harmful for Growth? Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1019-32, December.
  14. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
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