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Inequality-growth nexus along the development process

Inequality-growth nexus along the development process Abstract The paper examines whether the effect of inequality on growth varies with the level of economic development. Using a comprehensive panel of annual data for the 48 contiguous US states over the period 1945–2004, we find overwhelming evidence in support of threshold effects in the relationship between inequality and growth. Our analysis shows that while the effect of inequality on growth is significantly negative at lower levels of development, this effect diminishes along the growth process and then turns significantly positive at higher levels of development. Quantitatively, the coefficient estimates imply that when real income per capita is below the threshold of $12,140 (2004 US dollar), a one standard deviation increase in the share of income held by the top 1% of the population reduces the growth rate of real per capita income by 0.6479 percentage points. In contrast, when income per capita is above the threshold of $21,065 (2004 US dollar), a one standard deviation increase in the top percentile income share raises the rate of growth of real per capita income by 0.2561 percentage points. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Nonlinear Dynamics & Econometrics de Gruyter

Inequality-growth nexus along the development process

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Publisher
de Gruyter
Copyright
Copyright © 2014 by the
ISSN
1081-1826
eISSN
1558-3708
DOI
10.1515/snde-2012-0037
Publisher site
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Abstract

Abstract The paper examines whether the effect of inequality on growth varies with the level of economic development. Using a comprehensive panel of annual data for the 48 contiguous US states over the period 1945–2004, we find overwhelming evidence in support of threshold effects in the relationship between inequality and growth. Our analysis shows that while the effect of inequality on growth is significantly negative at lower levels of development, this effect diminishes along the growth process and then turns significantly positive at higher levels of development. Quantitatively, the coefficient estimates imply that when real income per capita is below the threshold of $12,140 (2004 US dollar), a one standard deviation increase in the share of income held by the top 1% of the population reduces the growth rate of real per capita income by 0.6479 percentage points. In contrast, when income per capita is above the threshold of $21,065 (2004 US dollar), a one standard deviation increase in the top percentile income share raises the rate of growth of real per capita income by 0.2561 percentage points.

Journal

Studies in Nonlinear Dynamics & Econometrics – de Gruyter

Published: May 1, 2014

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    Siebert
  • Inference When a Nuisance Parameter is not Identified under the Null Hypothesis
    Hansen
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    Alesina
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    Bhattacharya
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    Piketty
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    Banerjee
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    Barro
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    Piketty
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    Alesina
  • The Relationship between Inequality and Labor Market Performance : Evidence from States of
    Partridge
  • Is Inequality Harmful for
    Persson
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    Bandyopadhyay
  • Is Inequality Harmful for Growth Comment
    Partridge
  • Is Inequality Harmful for Growth Comment
    Partridge
  • The Short - Term Effects of Foreign Bank Entry on Domestic Bank Behaviour Does Economic Development Matter of
    Lensink
  • The Elusive Inequality - Economic Growth Relationship : Are there Differences between Cities and the Countryside of
    Fallah
  • between Inequality in and article
    Lin
  • What Do We Know about Global Income Inequality of
    Anand
  • Inequality
    Bénabou
  • Income Distribution Macroeconomics of
    Galor
  • From Physical to Human Capital Accumulation : Inequality and the Process of of
    Galor
  • Economic Consequences of Income Inequality of the Federal Reserve Bank of Kansas City on Income Inequality : Issues and Policy Options
    Siebert
  • The Generalization of the General Theory InThe Rate of Interest and Other Essays
    Robinson
  • From Physical to Human Capital Accumulation : Inequality and the Process of of
    Galor
  • Income Distribution and Democracy What the Data Say of
    Perotti
  • Technical Progress Mobility
    Galor
  • Inequality and Growth in the United States : Evidence from a New State - Level Panel of Income Inequality Measures
    Frank
  • Income Distribution Macroeconomics of
    Galor
  • Income Distribution and the Process of
    Galor
  • The Dynamics of the Wealth Distribution and Interest Rates with Credit Rationing of
    Piketty
  • What Drives the Cross - country Growth and Inequality Correlation of
    Bandyopadhyay
  • Income Distribution Investment
    Perotti
  • Inference When a Nuisance Parameter is not Identified under the Null Hypothesis
    Hansen
  • The Inequality Government Ideology Matters of
    Bjørnskov
  • between Inequality in and article
    Lin
  • How Teachers Unions Affect Production of
    Hoxby
  • Income Inequality is not Harmful for Growth Theory Evidence of
    Li
  • Income Distribution Political Instability Investment
    Alesina
  • Income Distribution and the Process of
    Galor
  • Essays on Values and Distribution The Free
    Kalsor
  • Income Inequality and Economic Freedom in the States
    Ashby
  • Income Distribution and Democracy What the Data Say of
    Perotti
  • Measure Investment in of
    Hanushek
  • The Elusive Inequality - Economic Growth Relationship : Are there Differences between Cities and the Countryside of
    Fallah
  • for Redistribution in the Land of Opportunities of
    Alesina
  • The Inequality Government Ideology Matters of
    Bjørnskov
  • Essays on Values and Distribution The Free
    Kalsor
  • Is Inequality Harmful for
    Persson
  • Threshold Effects in Non - Dynamic Panels Estimation Testing Inference of
    Hansen
  • The Short - Term Effects of Foreign Bank Entry on Domestic Bank Behaviour Does Economic Development Matter of
    Lensink
  • Wage Policy and Restructuring : The Swedish Labor Market since InThe Welfare State in Transition Reforming the Swedish Model edited by Swedenborg Chicago University of Chicago
    Edin
  • Inequality and Growth in the United States : Evidence from a New State - Level Panel of Income Inequality Measures
    Frank
  • Democracy of
    Saint
  • How Teachers Unions Affect Production of
    Hoxby
  • Inequality What can the Data Say of
    Banerjee
  • Technical Progress Mobility
    Galor
  • Credit Market Imperfections Income Distribution and Capital Accumulation
    Bhattacharya
  • Distributive of
    Alesina
  • Inequality
    Bénabou
  • Inequality and Growth in a Panel of Countries of
    Barro
  • What Do We Know about Global Income Inequality of
    Anand
  • Self - Selection and Internal Migration in the United States of
    Borjas
  • Threshold Effects in Non - Dynamic Panels Estimation Testing Inference of
    Hansen
  • Reassessment of the Relationship between Inequality and Growth in the United States : Evidence from a New State - level Panel of Income Inequality Measures
  • Measure Investment in of
    Hanushek
  • The Generalization of the General Theory InThe Rate of Interest and Other Essays
    Robinson
  • Income Distribution Investment
    Perotti
  • Reassessment of the Relationship between Inequality and Growth in the United States : Evidence from a New State - level Panel of Income Inequality Measures