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Inequality and Growth: A Review on a Great Open Debate in Economics

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  • Foellmi, Reto
  • Baselgia, Enea

Abstract

What is the relationship between inequality and growth? This question has occupied and fascinated social scientists for more than a century. This chapter critically reviews the recent empirical and theoretical literature on the complex interplay between inequality and economic growth. Inequality might come in many forms: (top) incomes, wages, wealth, land or opportunities. At the same time, growth performance could be measured as average growth rates, variability of growth or the potential for growth to "take off". This survey considers causality running from inequality to growth; hence, the Kuznets hypothesis is only touched on in passing. The empirical literature estimating the effect of inequality on growth has produced a wide range of results, precluding clear-cut conclusions on the inequality-growth relationship. Consequently, it remains central to understand the underlying economic causes and channels through which (different aspects of) inequality can promote or hamper economic growth. This chapter aims to provide a broad overview of the contemporary results and an outline for prospective empirical and theoretical work.

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  • Foellmi, Reto & Baselgia, Enea, 2022. "Inequality and Growth: A Review on a Great Open Debate in Economics," Economics Working Paper Series 2205, University of St. Gallen, School of Economics and Political Science.
    • Handle: RePEc:usg:econwp:2022:05
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    Keywords

    Economic Growth; Inequality; Redistribution; Theory and Evidence;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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