A Survey on Growth and Inequality: Does Improved Inequality Data Have Anything to Say?

Theories on the relationship between inequality and economic growth can be divided into two strands of paradigm, i.e. those which predict tradeoff between growth and equity, and those which predict no tradeoff. The consensus of empirical literature in 1980s until mid 1990s suggest there need be no conflict between fast growth and distribution. Empirical works in that era, however, were subject to criticism over the reliability of inequality data. The availability and accessibility of more improved income inequality data after the publication of Deininger and Squire’s (1996) had motivated more empirical works on the relationship between growth and inequality and had also made possible the use of relatively advanced econometric methods. Recent empirical literature following this publication of new dataset, however, do not provide strong support for whether growth and inequality are negatively or positively associated. It mainly suggest no overall relation between growth and inequality. There is little indication, however, that in the context of developing countries, the tradeoff may be resolved.