Income Inequality and Macroeconomic Volatility: an Empirical Investigation
Recently, there has been a resurgence in the interest in the determinants of income inequality across countries. This paper adds to this literature by examining the role of one further explanatory variable: macroeconomic volatility. Using a cross-section of developed and developing countries, the authors regress income inequality on volatility, defined as the standard deviation of the rate of output growth. They find that greater volatility increases the Gini coefficient and the income share of the top quintile, while it reduces the share of the other quintiles. The other variable that seems to play an important role is relative labour productivity, supporting previous findings.
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