A. Alesina and R. Perotti, “Income distribution, political instability, and investment,” European Economic Review, vol. This conclusion is echoed by University of Melbourne economist Sarah Voitchovsky in her recent review of the literature in the “Oxford Handbook on Economic Inequality,” where she says: “While data constraints continue to limit the type of empirical analyses that can be undertaken, investigations that focus on specific channels generally provide more robust conclusions than evidence from reduced form analyses.”. Restore content access for purchases made as guest. Given the narrowing of inequality in the more economically developed nations, Kuznets’ analysis suggested that the inequality in poorer countries was a transitional phase that would reverse itself once these nations became more economically developed. specifications of the relationship between inequality and growth in the literature. 30 days to view or download: 6, pp. Moreover, growing in­equality and poverty create various … 11. The studies have in common that they all rely on the System GMM dynamic panel estimator. In recent work (Aiyar and Ebeke 2018), we point to the neglected role of equality of opportunity in mediating this relationship. More, Equitable Growth supports research and policy analysis on how tax and macroeconomic policies can promote stable and broad-based economic growth. relationship between income inequality and economic growth. This column highlights the neglected role of equality of opportunity in mediating this relationship. This trend led Nobel Laureate economist Simon Kuznets to write: “One might thus assume a long swing in the inequality characterizing the secular income structure: widening in the early phases of economic growth when the transition from the pre-industrial to the industrial civilization was most rapid; becoming stabilized for a while; and then narrowing in the later phases.”. It introduces only one source of heterogeneity and cannot address issues pertaining to wealth and income mobility. These is also an extensive literature on earnings variability between skilled and unskilled labor and how it reflects the underlying skill biased technological change. Establishing causality is exceptionally difficult in the social sciences and the standard approach employed for studying relationships between inequality and growth has been to look at the level of inequality preceding the growth period being measured. The results obtained by previous empirical papers were mixed. 7, p. 938. show that inequality reduces economic growth, suggesting that redistribution may increase growth. To explore the question further, our study estimated a relationship for GDP per capita in which a change in income inequality was added to standard growth drivers such as physical and human capital. The relationship between inequality and economic growth has been well-studied over the past 25 years with papers reporting a range of results including claims that inequality harms growth, that inequality is irrelevant for growth and that inequality aids in growth. At the time, many reasoned that declining inequality was a natural outgrowth of the development process: As countries become more economically mature, inequality would fall. Much has been written about the relationship between inequality and economic development, but theory remains inconclusive. doi:10.1093/qje/qjr020[Crossref], [Web of Science ®] , [Google Scholar]). Most research shows that, in the long term, inequality is negatively related to economic growth and that countries with less disparity and a larger middle class boast stronger and more stable growth. An important characteristic of the framework is that the effects of any changes on the measures of inequality are path-dependent, a characteristic that has important policy implications. This paper does not contain policy advice. Growth Regime, focusing on the historical evolution of the relationship between. Poverty and inequality imply absence of social justice. First, retaining Kuznets's emphasis on the importance of economic growth I am particularly grateful to Cecilia García-Peñalosa, with whom I began my work in this area. Register to receive personalised research and resources by email, The relationship between economic growth and inequality, University of Washington , Seattle , WA , USA, /doi/full/10.1080/00779954.2013.776483?needAccess=true, On the long-run evolution of inheritance – France 1820-2050, Growth and income inequality: A canonical model, Fiscal policy, elastic labor supply, and endogenous growth, Distributional dynamics in a neoclassical growth model: The role of elastic labor supply, Taxation and income distribution dynamics in a neoclassical growth model, Growth and inequality: Dependence on the time path of productivity increases (and other structural changes). Next, the economic growth contribution to reduce poverty in SAARC, Malaysia and China is
2020 relationship between economic growth and inequality