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The optimal rate of inequality: A framework for the relationship between income inequality and economic growth

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  • Charles-Coll, Jorge A.

Abstract

This paper contributes to the debate over the relationship between inequality and growth by proposing that the disparities in empirical studies derive from the fact that they have not accounted for the level of inequality as a factor that can affect the sign of the relationship. An inverted “U” shaped relationship is demonstrated, showing that low levels of inequality exert a positive correlation with economic growth while high levels have a negative one. Additionally, and more importantly, it is demonstrated the existence of an optimal rate of inequality (ORI) that maximizes growth rates and releases the economy from any distortion generated by elevated inequality or taxation. Empirical evidence from a broad panel of countries as well as a bibliometric analysis is presented to validate these propositions.

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  • 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.
  • Handle: RePEc:pra:mprapa:28921
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    3. Henderson, Daniel J. & Qian, Junhui & Wang, Le, 2015. "The inequality–growth plateau," Economics Letters, Elsevier, vol. 128(C), pages 17-20.
    4. Fahmida Khatun & Syed Yusuf Saadat, 2022. "The Optimum Level of Income Inequality in South Asia: An Econometric Analysis," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 23(1), pages 7-29, March.
    5. Davidescu, Adriana AnaMaria & Petcu, Monica Aureliana & Curea, Stefania Cristina & Manta, Eduard Mihai, 2022. "Two faces of the same coin: Exploring the multilateral perspective of informality in relation to Sustainable Development Goals based on bibliometric analysis," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 683-705.
    6. Adalgiso Amendola & Roberto Dell’Anno, 2014. "Income inequality and economic growth: an empirical investigation in Mediterranean countries," RIEDS - Rivista Italiana di Economia, Demografia e Statistica - The Italian Journal of Economic, Demographic and Statistical Studies, SIEDS Societa' Italiana di Economia Demografia e Statistica, vol. 68(2), pages 35-58, April-Jun.

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    More about this item

    Keywords

    Inequality; Growth; Redistribution; Optimal Rate of Inequality;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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