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Income Inequality Is Not Harmful for Growth: Theory and Evidence

  • Hongyi Li
  • Heng-fu Zou

The paper shows that income inequality may theoretically lead to higher economic growth if public consumption enters the utility function. Empirically, baseline estimations and a sensitivity analysis show that income inequality is positively, and most of the time significantly, associated with economic growth. These findings stand in sharp contrast to the negative association between inequality and growth propounded by Alesina and Rodrik and by Persson and Tabellini.

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File URL: http://down.aefweb.net/WorkingPapers/w74.pdf
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Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 74.

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Length: 17 pages
Date of creation: Oct 1998
Date of revision:
Publication status: Published in Review of Development Economics, Volume 2, Issue 3, pages 318┬ĘC334, October 1998
Handle: RePEc:cuf:wpaper:74
Contact details of provider: Web page: http://cema.cufe.edu.cn/

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  1. Greenwood, J. & Jovanovic, B., 1988. "Financial Development, Growth, And The Distribution Of Income," RCER Working Papers 131, University of Rochester - Center for Economic Research (RCER).
  2. Robert E. Hall, 1981. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
  3. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  4. Atkinson, A B, 1997. "Bringing Income Distribution in from the Cold," Economic Journal, Royal Economic Society, vol. 107(441), pages 297-321, March.
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