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Income inequality and economic growth: a panel VAR approach

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  • Bebonchu Atems
  • Jason Jones

Abstract

The paper uses a new and improved comprehensive dataset on inequality to examine the effects of inequality on per capita income and the effects of per capita income on income inequality. The use of such a comprehensive cross-state panel allows for the estimation of the dynamic responses of inequality and per capita income using panel vector autoregressive (VAR) models. Cumulative impulse responses from a baseline bivariate VAR model indicate that shocks to the Gini index of inequality significantly decrease the level of per capita income. This finding is robust to changes in the measures of inequality used, as well as to the estimation of a three-variable model. We also find that the relationship between inequality and per capita income varies over time and is sensitive to particular episodes in history. Copyright Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Bebonchu Atems & Jason Jones, 2015. "Income inequality and economic growth: a panel VAR approach," Empirical Economics, Springer, vol. 48(4), pages 1541-1561, June.
    • Handle: RePEc:spr:empeco:v:48:y:2015:i:4:p:1541-1561
    DOI: 10.1007/s00181-014-0841-7
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    5. N.M. Odhiambo, 2022. "Information Technology, Income Inequality and Economic Growth in sub-Saharan African Countries," Working Papers AESRI-2022-14, African Economic and Social Research Institute (AESRI), revised Jan 2022.
    6. Hyejin Jung & Inseok Seo & Kyujin Jung, 2018. "Mediating Role of Entrepreneurship in Explaining the Association Between Income Inequality and Regional Economic Performance," Economic Development Quarterly, , vol. 32(2), pages 135-145, May.
    7. Mr. Francesco Grigoli & Evelio Paredes & Gabriel Di Bella, 2016. "Inequality and Growth: A Heterogeneous Approach," IMF Working Papers 2016/244, International Monetary Fund.
    8. Vicente German-Soto & Chapa Cantú, 2015. "Cointegration with structural changes between per capita product and income inequality in Mexico," Applied Economics, Taylor & Francis Journals, vol. 47(49), pages 5215-5228, October.
    9. Cheratian, Iman & Goltabar, Saleh, 2017. "Energy Consumption and Regional Economic Growth: The Case of Iranian Manufacturing Sector," MPRA Paper 78315, University Library of Munich, Germany.
    10. Nikos Benos & Stelios Karagiannis, 2018. "Inequality And Growth In The United States: Why Physical And Human Capital Matter," Economic Inquiry, Western Economic Association International, vol. 56(1), pages 572-619, January.
    11. Deininger, Sebastian & Maringer, Dietmar, 2017. "Channels of Sovereign Risk Spillovers and Investment in the Manufacturing Sector," Working papers 2017/07, Faculty of Business and Economics - University of Basel.
    12. Bebonchu Atems, 2020. "Identifying the Dynamic Effects of Income Inequality on Crime," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(4), pages 751-782, August.
    13. Atems, Bebonchu, 2019. "The effects of government spending shocks: Evidence from U.S. states," Regional Science and Urban Economics, Elsevier, vol. 74(C), pages 65-80.
    14. Odhiambo, Nicholas M., 2022. "Information technology, income inequality and economic growth in sub-Saharan African countries," Telecommunications Policy, Elsevier, vol. 46(6).
    15. Ryan H. Murphy & Colin O’Reilly, 2019. "Applying panel vector autoregression to institutions, human capital, and output," Empirical Economics, Springer, vol. 57(5), pages 1633-1652, November.
    16. Dong, Xiao-Ying & Hao, Yu, 2018. "Would income inequality affect electricity consumption? Evidence from China," Energy, Elsevier, vol. 142(C), pages 215-227.
    17. Atems, Bebonchu, 2018. "Regional heterogeneity in the relationship between inequality and growth: Evidence from panel vector autoregressions," The Journal of Economic Asymmetries, Elsevier, vol. 17(C), pages 41-47.
    18. David Castells-Quintana & Raul Ramos & Vicente Royuela, 2015. "Income inequality in European Regions: Recent trends and determinants," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 35(2), pages 123-146, October.
    19. Mrabet, Zouhair & Alsamara, Mouyad & Mimouni, Karim & Mnasri, Ayman, 2021. "Can human development and political stability improve environmental quality? New evidence from the MENA region," Economic Modelling, Elsevier, vol. 94(C), pages 28-44.
    20. Kufenko, Vadim & Geloso, Vincent, 2021. "Who are the champions? Inequality, economic freedom and the Olympics," Journal of Institutional Economics, Cambridge University Press, vol. 17(3), pages 411-427, June.
    21. Odhiambo, Nicholas M., 2022. "Information technology, income inequality and economic growth in sub-Saharan African countries," Telecommunications Policy, Elsevier, vol. 46(6).
    22. Kyungmin Kim, 2020. "Income inequality and house prices in the United States: A panel VAR analysis," Economics Bulletin, AccessEcon, vol. 40(3), pages 2111-2120.
    23. Bebonchu Atems & Grayden Shand, 2018. "An empirical analysis of the relationship between entrepreneurship and income inequality," Small Business Economics, Springer, vol. 51(4), pages 905-922, December.
    24. Robert Calvert Jump, 2018. "Inequality And Aggregate Demand In The Is‐Lm And Is‐Mp Models," Bulletin of Economic Research, Wiley Blackwell, vol. 70(3), pages 269-276, July.

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    More about this item

    Keywords

    Inequality; Growth; Panel vector autoregressions; 040; C33; I24;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality

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