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Estimation and Inference for Actual and Counterfactual Growth Incidence Curves

Author

Listed:
  • Ferreira, Francisco H. G.

    (London School of Economics)

  • Firpo, Sergio

    (Insper, São Paulo)

  • Galvao, Antonio F.

    (University of Arizona)

Abstract

Different episodes of economic growth display widely varying distributional characteristics, both across countries and over time. Growth is sometimes accompanied by rising and sometimes by falling inequality. Applied economists have come to rely on the Growth Incidence Curve, which gives the quantile-specific rate of income growth over a certain period, to describe and analyze the incidence of economic growth. This paper discusses the identification conditions, and develops estimation and inference procedures for both actual and counterfactual growth incidence curves, based on general functions of the quantile potential outcome process over the space of quantiles. The paper establishes the limiting null distribution of the test statistics of interest for those general functions, and proposes resampling methods to implement inference in practice. The proposed methods are illustrated by a comparison of the growth processes in the United States and Brazil during 1995-2007. Although growth in the average real wage was disappointing in both countries, the distribution of that growth was markedly different. In the United States, wage growth was mediocre for the bottom 80 percent of the sample, but much more rapid for the top 20 percent. In Brazil, conversely, wage growth was rapid below the median, and negative at the top. As a result, inequality rose in the United States and fell markedly in Brazil.

Suggested Citation

  • Ferreira, Francisco H. G. & Firpo, Sergio & Galvao, Antonio F., 2017. "Estimation and Inference for Actual and Counterfactual Growth Incidence Curves," IZA Discussion Papers 10473, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp10473
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    1. Estimation and Inference for Actual and Counterfactual Growth Incidence Curves
      by maximorossi in NEP-LTV blog on 2017-03-22 00:55:01

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    2. Kim, Ju Hyun & Park, Byoung G., 2018. "Weak convergence of local quantile treatment effect processes," Economics Letters, Elsevier, vol. 162(C), pages 49-52.

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    More about this item

    Keywords

    inference; potential outcomes; growth incidence curves; quantile process;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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