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Tracking positive and negative effects of inequality on long-run growth

Author

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  • David Castells-Quintana

    () (Univ Autonoma de Barcelona
    Universidad de Barcelona)

  • Vicente Royuela

    (Universidad de Barcelona)

Abstract

Abstract Despite extensive research controversy remains on the effects of income inequality on economic growth. The literature proposes several transmission channels through which these effects may occur and even the existence of two different forms of inequality. However, empirical studies have not generally distinguished between these channels, nor have they considered the two forms of inequality and their separate effects on growth. In this paper, we review the theory and the evidence of the transmission channels through which inequality influences growth. We contribute to the literature by using a system of recursive equations, following a control function approach, to empirically assess the relevance of these channels and to differentiate between two forms of inequality. In a single model, we capture both a negative and a positive effect of inequality on long-run economic growth.

Suggested Citation

  • David Castells-Quintana & Vicente Royuela, 2017. "Tracking positive and negative effects of inequality on long-run growth," Empirical Economics, Springer, vol. 53(4), pages 1349-1378, December.
  • Handle: RePEc:spr:empeco:v:53:y:2017:i:4:d:10.1007_s00181-016-1197-y
    DOI: 10.1007/s00181-016-1197-y
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    Citations

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    Cited by:

    1. Lopez-Uribe, Maria del Pilar & Castells-Quintana, David & McDermott, Thomas K. J., 2017. "Geography, institutions and development: a review ofthe long-run impacts of climate change," LSE Research Online Documents on Economics 65147, London School of Economics and Political Science, LSE Library.
    2. Raul Ramos & Vicente Royuela, 2014. "“Income inequality in Europe. Analysis of recent trends at the regional level”," IREA Working Papers 201425, University of Barcelona, Research Institute of Applied Economics, revised Oct 2014.
    3. Stephan Klasen & Nathalie Scholl & Rahul Lahoti & Sophie Ochmann & Sebastian Vollmer, 2016. "Inequality – Worldwide Trends and Current Debates," Courant Research Centre: Poverty, Equity and Growth - Discussion Papers 209, Courant Research Centre PEG.
    4. repec:eee:jmacro:v:55:y:2018:i:c:p:293-313 is not listed on IDEAS
    5. David Castells-Quintana & Vicente Royuela, 2014. "Agglomeration, inequality and economic growth," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(2), pages 343-366, March.
    6. David Castells-Quintana & Maria del Pilar Lopez-Uribe & Tom McDermott, 2015. "Climate change and the geographical and institutional drivers of economic development," GRI Working Papers 198, Grantham Research Institute on Climate Change and the Environment.
    7. repec:bla:ausecp:v:56:y:2017:i:1:p:59-71 is not listed on IDEAS

    More about this item

    Keywords

    Inequality; Economic growth; Development; Control function approach;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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