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Income Inequality and Growth: a Panel Study of Swedish Counties 1960-2000

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This paper explores the relationship between income inequality and growth using panel data on Swedish counties from 1960-2000. Compared to standard methods of estimating this relationship yearly regional level data are used, and inequality is allowed to be endogenous. We find a significant positive impact of inequality on growth, but the magnitude of the effect decreases with the length of the growth period studied. When allowing income inequality to be endogenous, using a panel 2SLS IV estimation, we find positive effect of inequality on 1 to 5-year growth rates, when significant, whereas the effect on 10-year growth rates are not clear cut.

Suggested Citation

  • Nahum, Ruth-Aïda, 2005. "Income Inequality and Growth: a Panel Study of Swedish Counties 1960-2000," Arbetsrapport 2005:3, Institute for Futures Studies.
  • Handle: RePEc:hhs:ifswps:2005_003
    Note: ISSN 1652-120X ISBN 91-89655-61-3
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    1. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, vol. 67(5), pages 1057-1112, September.
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    5. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    6. Panizza, Ugo, 2002. "Income Inequality and Economic Growth: Evidence from American Data," Journal of Economic Growth, Springer, vol. 7(1), pages 25-41, March.
    7. Cecilia Garcia-Penalosa & Eve Caroli & Philippe Aghion, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1615-1660, December.
    8. Perotti, Roberto, 1996. "Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-187, June.
    9. Orazio P. Attanasio & Lucio Picci & Antonello E. Scorcu, 2000. "Saving, Growth, and Investment: A Macroeconomic Analysis Using a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 182-211, May.
    10. Jinyong Hahn & Jerry Hausman, 2002. "A New Specification Test for the Validity of Instrumental Variables," Econometrica, Econometric Society, vol. 70(1), pages 163-189, January.
    11. Partridge, Mark D, 1997. "Is Inequality Harmful for Growth? Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1019-1032, December.
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    1. repec:ris:ecoint:0805 is not listed on IDEAS
    2. Anders Björklund & Richard B. Freeman, 2010. "Searching for Optimal Inequality/Incentives," NBER Chapters,in: Reforming the Welfare State: Recovery and Beyond in Sweden, pages 25-56 National Bureau of Economic Research, Inc.
    3. Adnen Ben Nasr & Mehmet Balcilar & Rangan Gupta & Seyi Saint Akadiri, 2018. "Asymmetric Effects of Inequality on Per Capita Real GDP of the United States," Working Papers 201820, University of Pretoria, Department of Economics.
    4. Roberto Dell'Anno & Adalgiso Amendola, 2015. "Social Exclusion and Economic Growth: An Empirical Investigation in European Economies," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 61(2), pages 274-301, June.
    5. Jorge Alberto Charles Coll, 2014. "Inequality and growth in the context of the Mexican economy: Does inequality matter for growth?," Working Papers 331, ECINEQ, Society for the Study of Economic Inequality.
    6. Ajit Karnik & Mala Lalvani, 2012. "Growth performance of Indian states," Empirical Economics, Springer, vol. 42(1), pages 235-259, February.
    7. Muhammad, Shahbaz & Faridul, Islam & Muhammad Sabihuddin, Butt, 2011. "Devaluation and income inequality: Evidence from Pakistan," MPRA Paper 35522, University Library of Munich, Germany, revised 21 Dec 2011.
    8. Charles-Coll, Jorge A., 2010. "The optimal rate of inequality: A framework for the relationship between income inequality and economic growth," MPRA Paper 28921, University Library of Munich, Germany.
    9. repec:eco:journ1:2017-04-34 is not listed on IDEAS
    10. Leyaro Vincent, 2015. "Threshold and Interaction Effects in the Trade, Growth, and Inequality Relationship," WIDER Working Paper Series 009, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    Income inequality; regional economic growth; panel data;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • 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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