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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 & Omer Moav, 2004. "From Physical to Human Capital Accumulation: Inequality and the Process of Development," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1001-1026, October.
  2. Easterly, William, 2001. " The Middle Class Consensus and Economic Development," Journal of Economic Growth, Springer, vol. 6(4), pages 317-35, December.
  3. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
  4. Partridge, Mark D, 1997. "Is Inequality Harmful for Growth? Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1019-32, December.
  5. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  6. Hongyi Li & Heng-fu Zou, 1998. "Income Inequality Is Not Harmful for Growth: Theory and Evidence," CEMA Working Papers 74, China Economics and Management Academy, Central University of Finance and Economics.
  7. Aghion, Philippe & Caroli, Eve & Garcia-Penalosa, Cecilia, 1999. "Inequality and economic growth: the perspective of the new growth theories," CEPREMAP Working Papers (Couverture Orange) 9908, CEPREMAP.
  8. Galor, Oded & Tsiddon, Daniel, 1996. "Technological Progress, Mobility, and Economic Growth," CEPR Discussion Papers 1413, C.E.P.R. Discussion Papers.
  9. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  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.
  11. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
  12. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
  13. Gastwirth, Joseph L, 1972. "The Estimation of the Lorenz Curve and Gini Index," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 306-16, August.
  14. Saint-Paul, Gilles & Verdier, Thierry, 1992. "Education, Democracy and Growth," CEPR Discussion Papers 613, C.E.P.R. Discussion Papers.
  15. F. C. Rodrigiuez, 1999. "Does Distributional Skewness Lead to Redistribution? Evidence from the United States," Economics and Politics, Wiley Blackwell, vol. 11(2), pages 171-199, 07.
  16. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  17. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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