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Inequality of opportunity and growth

  • Gustavo A. Marrero

    ()

    (Universidad de La Laguna)

  • Juan G. Rodríguez

    ()

    (Universidad Rey Juan Carlos)

Theoretical and empirical studies exploring the effects of income inequality upon growth reach a disappointing inconclusive result. This paper postulates that one reason for this ambiguity is that income inequality is actually a composite measure of at least two different sorts of inequality: inequality of opportunity and inequality of returns to effort. These two types of inequality affect growth through opposite channels, so the relationship between income inequality and growth is positive or negative depending on which component is larger. We test this proposal using inequality-of-opportunity measures computed from the PSID database for 23 states of the U.S. in 1980 and 1990. We find robust support for a negative relationship between inequality of opportunity and growth, and a positive relationship between inequality of returns to effort and growth.

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File URL: http://www.ecineq.org/milano/WP/ECINEQ2010-154.pdf
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Paper provided by ECINEQ, Society for the Study of Economic Inequality in its series Working Papers with number 154.

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Length: 43 pages
Date of creation: 2010
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Handle: RePEc:inq:inqwps:ecineq2010-154
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