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Inequality and Growth Revisited

  • Figini, P

In recent years, a vast literature on the links between inequality and growth has flourished. The emerging consensus is that equality enhances growth, but disagreement exists on the underlying mechanisms. In this paper, we aim to provide the reader with new empirical evidence from a cross sectional analysis of countries. First, we try to improve upon the accuracy of previous empirical models by using new data on inequality extracted from Deininger and Squire (1996). Second, we test alternative specifications of the relationship between growth, redistribution and inequality. Third, we test the relevance of the theoretical models proposed in the literature to explain the inequality-growth relationship. Results suggest that first, the link between inequality and growth is robust to measurement errors in inequality. Second, the fertility-education issue is the main explanatory factor of the link. Third, we find a non-linear relationship between inequality, redistribution and growth, which tends to confirm Bénabou's model (1996). However, there is also evidence to support an alternative explanation, in which there is reverse causality between redistribution and inequality: accordingly, countries would be considered unequal because of their weak redistributive policies.

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File URL: http://www.tcd.ie/Economics/TEP/1999_papers/TEPNo2PF99.pdf
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Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number 992.

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Date of creation: 1999
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Handle: RePEc:tcd:tcduee:992
Contact details of provider: Postal: Trinity College, Dublin 2
Phone: (+ 353 1) 6081325
Fax: 6772503
Web page: http://www.tcd.ie/Economics/
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  1. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  2. Alesina, Alberto, et al, 1996. " Political Instability and Economic Growth," Journal of Economic Growth, Springer, vol. 1(2), pages 189-211, June.
  3. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  4. Dahan, Momi & Tsiddon, Daniel, 1998. " Demographic Transition, Income Distribution, and Economic Growth," Journal of Economic Growth, Springer, vol. 3(1), pages 29-52, March.
  5. Markus Knell, 1999. "Social Comparisons, Inequality, and Growth," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 664-, December.
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  7. Xavier Sala-i-Martin, 1997. "I just ran four million regressions," Economics Working Papers 201, Department of Economics and Business, Universitat Pompeu Fabra.
  8. Keefer, Philip & Knack, Stephen, 2002. " Polarization, Politics and Property Rights: Links between Inequality and Growth," Public Choice, Springer, vol. 111(1-2), pages 127-54, March.
  9. Chiu, W Henry, 1998. "Income Inequality, Human Capital Accumulation and Economic Performance," Economic Journal, Royal Economic Society, vol. 108(446), pages 44-59, January.
  10. Benhabib, Jess & Rustichini, Aldo, 1996. " Social Conflict and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 125-42, March.
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  12. Deininger, Klaus & Squire, Lyn, 1998. "New ways of looking at old issues: inequality and growth," Journal of Development Economics, Elsevier, vol. 57(2), pages 259-287.
  13. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
  14. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
  15. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October.
  16. Coulter, Fiona A E & Cowell, Frank A & Jenkins, Stephen P, 1992. "Equivalence Scale Relativities and the Extent of Inequality and Poverty," Economic Journal, Royal Economic Society, vol. 102(414), pages 1067-82, September.
  17. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
  18. Saint-Paul, Gilles & Verdier, Thierry, 1993. "Education, democracy and growth," Journal of Development Economics, Elsevier, vol. 42(2), pages 399-407, December.
  19. Paolo Figini, 1998. "Inequality Measures, Equivalence Scales and Adjustment for Household Size and Composition," Economics Technical Papers 988, Trinity College Dublin, Department of Economics.
  20. Persson, Torsten & Tabellini, Guido, 1992. "Growth, distribution and politics," European Economic Review, Elsevier, vol. 36(2-3), pages 593-602, April.
  21. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
  22. Aghion, Philippe & Bolton, Patrick, 1997. "A Theory of Trickle-Down Growth and Development," Review of Economic Studies, Wiley Blackwell, vol. 64(2), pages 151-72, April.
  23. Hongyi Li & Lyn Squire & Heng-fu Zou, 1998. "Explaining International and Intertemporal Variations in Income Inequality," CEMA Working Papers 73, China Economics and Management Academy, Central University of Finance and Economics.
  24. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, vol. 47(2), pages 403-427, August.
  25. Roubini, Nouriel & Swagel, Phillip & Ozler, Sule & Alesina, Alberto, 1996. "Political Instability and Economic Growth," Scholarly Articles 4553024, Harvard University Department of Economics.
  26. Perotti, Roberto, 1994. "Income distribution and investment," European Economic Review, Elsevier, vol. 38(3-4), pages 827-835, April.
  27. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  28. Aghion, Philippe & Bolton, Patrick, 1992. "Distribution and growth in models of imperfect capital markets," European Economic Review, Elsevier, vol. 36(2-3), pages 603-611, April.
  29. Partridge, Mark D, 1997. "Is Inequality Harmful for Growth? Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1019-32, December.
  30. Paolo Figini, 1998. "Measuring Inequality: On the Correlation of Indices," Economics Technical Papers 987, Trinity College Dublin, Department of Economics.
  31. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
  32. Alesina, Alberto & Perotti, Roberto, 1994. "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review, World Bank Group, vol. 8(3), pages 351-71, September.
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