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Inequality and Growth: A Semiparametric Investigation

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  • Dustin Chambers

    (Salisbury University public)

Abstract

The relationship between income inequality and economic growth is re-examined using a semiparametric, dynamic panel data model. Significant empirical evidence is uncovered supporting the theory that the relationship between these variables is nonlinear. Additionally, the evidence also supports the conclusion that other important economic variables, notably past inequality and the rate of investment, directly affect the relationship between base period inequality and subsequent 5-year growth. The results of this paper suggest that higher income inequality (regardless of the magnitude of change) and small reductions in income inequality both reduce subsequent growth. Interestingly, large reductions in income inequality are growth promoting. Moreover, it is found that lower investment rates mitigate the negative effects of higher inequality on growth. It is shown that these results, collectively, are consistent with both a simple political economy model with costly bargaining and an economic growth model with capital-skill complementarities and imperfect credit markets

Suggested Citation

  • Dustin Chambers, 2005. "Inequality and Growth: A Semiparametric Investigation," Computing in Economics and Finance 2005 132, Society for Computational Economics.
    • Handle: RePEc:sce:scecf5:132
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    More about this item

    Keywords

    Economic Growth; Income Inequality; Capital-Skill Complementarity; Semiparametric Dynamic Panel;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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