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Do rising top incomes lift all boats?

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  • Dan Andrews
  • Christopher Jencks
  • Andrew Leigh

Abstract

Pooling data for 1905 to 2000, we find no systematic relationship between top income shares and economic growth in a panel of 12 developed nations observed for between 22 and 85 years. After 1960, however, a one percentage point rise in the top decile’s income share is associated with a statistically significant 0.12 point rise in GDP growth during the following year. This relationship is not driven by changes in either educational attainment or top tax rates. If the increase in inequality is permanent, the increase in growth appears to be permanent, but it takes 13 years for the cumulative positive effect of faster growth on the mean income of the bottom nine deciles to offset the negative effect of reducing their share of total income.

Suggested Citation

  • Dan Andrews & Christopher Jencks & Andrew Leigh, 2009. "Do rising top incomes lift all boats?," CAMA Working Papers 2009-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2009-17
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Do rising top incomes mean higher growth?
      by Economic Logician in Economic Logic on 2009-12-02 23:01:00
    2. Inequality – It’s Bad…And It’s About to Get Way Worse
      by The Institute in INET Blog on 2013-09-13 23:21:07
    3. Hur påverkar ökad ojämlikhet tillväxten?
      by nonicoclolasos in Nonicoclolasos on 2009-12-03 22:06:36
    4. Har Rosenberg rätt om jämlikhet?
      by nonicoclolasos in Nonicoclolasos on 2010-03-09 12:00:08

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    Cited by:

    1. Peter Hoeller, 2012. "Less Income Inequality and More Growth – Are they Compatible? Part 4. Top Incomes," OECD Economics Department Working Papers 927, OECD Publishing.
    2. Josh Bivens & Lawrence Mishel, 2013. "The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 57-78, Summer.
    3. Dash, Bharatee Bhushan & Mukherjee, Sacchidananda, 2013. "Does Political Competition Influence Human Development? Evidence from the Indian States," Working Papers 13/118, National Institute of Public Finance and Policy.
    4. Burkhauser, Richard V. & De Neve, Jan-Emmanuel & Powdthavee, Nattavudh, 2016. "Top Incomes and Human Well-being Around the World," IZA Discussion Papers 9677, Institute of Labor Economics (IZA).
    5. Risso, W. Adrián & Punzo, Lionello F. & Carrera, Edgar J. Sánchez, 2013. "Economic growth and income distribution in Mexico: A cointegration exercise," Economic Modelling, Elsevier, vol. 35(C), pages 708-714.
    6. Raymundo M. Campos-Vazquez & Emmanuel Chavez & Gerardo Esquivel, 2017. "Growth is (really) good for the (really) rich," The World Economy, Wiley Blackwell, vol. 40(12), pages 2639-2675, December.
    7. Herzer, Dierk & Vollmer, Sebastian, 2013. "Rising top incomes do not raise the tide," Journal of Policy Modeling, Elsevier, vol. 35(4), pages 504-519.
    8. Michael, Bryane & Hartwell, Christopher A. & Ho, Gary, 2013. "Does Financial Market Development Explain (or at Least Predict) the Demand for Wealth Management and Private Banking Services in Developing Markets?," EconStor Preprints 109960, ZBW - Leibniz Information Centre for Economics.
    9. Cabral, René & García-Díaz, Rocío & Mollick, André Varella, 2016. "Does globalization affect top income inequality?," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 916-940.
    10. Thompson Jeffrey P. & Leight Elias, 2012. "Do Rising Top Income Shares Affect the Incomes or Earnings of Low and Middle-Income Families?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-38, November.
    11. Santo Milasi, 2014. "Top Income Shares and Budget Deficits," Rivista di Politica Economica, SIPI Spa, issue 1, pages 383-406, January-M.
    12. Michal Brzezinski, 2013. "Income Polarization and Economic Growth," LIS Working papers 587, LIS Cross-National Data Center in Luxembourg.
    13. Anjan K. Saha & Vinod Mishra & Russell Smyth, 2021. "Financial development and top income shares in OECD countries," Southern Economic Journal, John Wiley & Sons, vol. 87(3), pages 952-978, January.
    14. Roine, Jesper & Vlachos, Jonas & Waldenström, Daniel, 2009. "The long-run determinants of inequality: What can we learn from top income data?," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 974-988, August.
    15. Tuominen Elina, 2016. "Changes or levels? Reassessment of the relationship between top-end inequality and growth," Working Papers 1609, Tampere University, Faculty of Management and Business, Economics.
    16. Saha, Anjan K. & Mishra, Vinod, 2020. "Genetic distance, economic growth and top income shares: Evidence from OECD countries," Economic Modelling, Elsevier, vol. 92(C), pages 37-47.
    17. Tuominen Elina, 2016. "Top-end inequality and growth: Empirical evidence," Working Papers 1608, Tampere University, Faculty of Management and Business, Economics.
    18. Jordá, Vanesa & Niño-Zarazúa, Miguel, 2019. "Global inequality: How large is the effect of top incomes?," World Development, Elsevier, vol. 123(C), pages 1-1.
    19. Tony Ward, 2017. "Inequality and Growth: Reviewing the Economic and Social Impacts," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 50(1), pages 32-51, March.
    20. Jordá, Vanesa & Niño-Zarazúa, Miguel, 2019. "Global inequality: How large is the effect of top incomes?," World Development, Elsevier, vol. 123(C), pages 1-1.
    21. Dierk Herzer, 2016. "Unions and Income Inequality," Economic Development Quarterly, , vol. 30(3), pages 267-274, August.
    22. Lane Kenworthy, 2010. "Rising Inequality, Public Policy, and America's Poor," Challenge, Taylor & Francis Journals, vol. 53(6), pages 93-109.

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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • N10 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - General, International, or Comparative
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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