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How much Inequality is Harmful for Growth? The Growth Maximizing Rate of Inequality in the Context of the Mexican Economy

Author

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  • Charles-Coll, Jorge

    (Universidad Autonoma de Tamaulipas, Victoria, Mexico)

  • Mayer Granados, Elisabeth L.

    (Universidad Autonoma de Tamaulipas, Victoria, Mexico)

Abstract

This paper contributes to the debate over the relationship between inequality and growth by testing in a country specific context, the proposition in Charles-Coll (2015) of a nonlinear relationship between income inequality and economic growth. The model is tested for the Mexican economy using a highly disaggregated dataset at the municipal level for the period of 2000-2005. An inverted “U” shaped relationship is demonstrated, showing that low levels of inequality exert a positive correlation with economic growth while high levels have a negative one. Additionally, the findings demonstrate the existence of a growth maximizing rate of inequality (GMRI) that optimizes growth rates and releases the economy from the distortions generated by elevated inequality or taxation. Quanta disuguaglianza danneggia la crescita? Il tasso di disuguaglianza che massimizza la crescita nell’economia messicana Questo studio contribuisce al dibattito sulla relazione tra disuguaglianza e crescita effettuando un test dell’ipotesi di Charles-Coll (2015) di una relazione nonlineare tra questi due fattori. Il modello è testato sull’economia messicana con l’utilizzo di un dataset fortemente disaggregato a livello locale relativo al periodo 2000-2005. Viene dimostrata l’esistenza di una relazione a “U”, con una relazione positiva tra disuguaglianza e crescita economica a bassi livelli di disuguaglianza ed una relazione negativa ad alti livelli di disuguaglianza. Inoltre i risultati dimostrano l’esistenza di un tasso di disuguaglianza che massimizza la crescita economica.

Suggested Citation

  • Charles-Coll, Jorge & Mayer Granados, Elisabeth L., 2017. "How much Inequality is Harmful for Growth? The Growth Maximizing Rate of Inequality in the Context of the Mexican Economy," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 70(3), pages 301-318.
  • Handle: RePEc:ris:ecoint:0805
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    References listed on IDEAS

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    More about this item

    Keywords

    Income Inequality; Economic Growth; Mexico;

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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