CharlesColl, Jorge A. (2010): The optimal rate of inequality: A framework for the relationship between income inequality and economic growth.
This is the latest version of this item.

PDF
MPRA_paper_28921.pdf Download (575kB)  Preview 
Abstract
This paper contributes to the debate over the relationship between inequality and growth by proposing that the disparities in empirical studies derive from the fact that they have not accounted for the level of inequality as a factor that can affect the sign of the relationship. An inverted “U” shaped relationship is demonstrated, showing that low levels of inequality exert a positive correlation with economic growth while high levels have a negative one. Additionally, and more importantly, it is demonstrated the existence of an optimal rate of inequality (ORI) that maximizes growth rates and releases the economy from any distortion generated by elevated inequality or taxation. Empirical evidence from a broad panel of countries as well as a bibliometric analysis is presented to validate these propositions.
Item Type:  MPRA Paper 

Original Title:  The optimal rate of inequality: A framework for the relationship between income inequality and economic growth 
Language:  English 
Keywords:  Inequality, Growth, Redistribution, Optimal Rate of Inequality 
Subjects:  E  Macroeconomics and Monetary Economics > E2  Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E25  Aggregate Factor Income Distribution D  Microeconomics > D3  Distribution > D31  Personal Income, Wealth, and Their Distributions D  Microeconomics > D3  Distribution > D33  Factor Income Distribution O  Economic Development, Innovation, Technological Change, and Growth > O1  Economic Development > O15  Human Resources ; Human Development ; Income Distribution ; Migration 
Item ID:  28921 
Depositing User:  Jorge Alberto Charles Coll 
Date Deposited:  15 Feb 2011 22:33 
Last Modified:  29 Mar 2017 10:39 
References:  Ahituv, A., Moav, O.: Fertility clubs and economic growth. In: Eicher, T. S., Turnovsky, S. J., (eds) Inequality and Growth: Theory and Policy Implications, pp. 6187. The MIT Press, Cambridge, London (2003) Alesina, A., Perotti, R.: Income distribution, political instability and investment. Eur. Econ. Rev. 40(6), 12031228 (1996) Alesina, A., Rodrik, D.: Distributive politics and economic growth. Quart. J. Econ. 109(2), 465490 (1994) Arellano, M., Bover, O.: Another look at the InstrumentalVariable Estimation of ErrorComponents Models. J. Econometrics. 68, 2952 (1995) Arellano, M., Bond, S. R.: Some Test of Specification for Panel Data: Monte Carlo Evidence and Application to Employment Equations. Rev. Econ. Stud. 58(2), 27797 (1991) Banerjee, A. V., Duflo, E.: Inequality and growth: What can the data say? J. Econ. Growth. 8(3), 267299 (2003) Barro, R. J.: Inequality and growth in a panel of countries. J. Econ. Growth. 5(1), 532 (2000) Barro, R. J.: Inequality and Growth Revisited. Asian Development Bank Working Paper Series. (11) (2008) Barro, R. J., Lee, J.W.: International comparisons of educational attainment. J. Monet. Econ. 32(3), 363394 (1993) Barro, R. J., Lee, J.W.: A New Data Set of Educational Attainment in the World, 19502010. NBER Working Paper No. 15902 (2010). Belsley, D. A.: Two or threestage least squares? Computational Econ. 1(1), 2130 (1988) Benabou, R.: Inequality and Growth. NBER Macroeconomics Annual. 11, 1174 (1996) Bengoa, M., SanchezRobles, B.: Does equality reduce growth? Some empirical evidence. Appl. Econ. Letters. 12(8), 479483 (2005) Bertola, G.: Macroeconomics of Distribution and Growth. In: Atkinson A.B., Bourguignon F. (eds) Handbook of Income Distribution, Vol. 1, pp. 477540. North Holland, Amsterdam Lausanne New York Oxford Shannon Singapore Tokyo (2000) Blundell, R. and Bond S.: Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. J. of Econometrics. 87, 11543 (1998) Castelló, A., Domenech, R.: Human capital inequality and economic growth: Some new evidence. Econ. J. 112(478), 187200 (2002) CastelloCliment, A.: Desigualdad en la distribución de la renta, políticas impositivas y crecimiento económico en los países de la OCDE. Investigaciones Econ. 25(3), 473514 (2001) CastellóCliment, A.: A Reassessment of the Relationship between Inequality and Growth: What Human Capital Inequality Data Say? Instituto Valenciano de Investigaciones Económicas. 200415 (2004). CastellóCliment, A.: Inequality and growth in advanced economies: an empirical investigation. J. Econ. Ineq. 8(3), 293321 (2010) Clarke, G. R. G.: More evidence on income distribution and growth. J. Devel. Econ. 47(2), 403427 (1995) Cornia, J. A., Addison, T., Kuski, S.: Income Distribution Changes and Their Impact in the PostSecond World War Period. In Cornia, J. A. (Ed) Inequality, Growth and Poverty in the era of liberalization and globalization, 2656. Oxford University Press, Oxford New York (2004) Davis, L. S.: Explaining the evidence on inequality and growth: informality and redistribution. B. E. J. of Macroeconomics. 7(1) (2007) De la Croix, D., Doepke, M.: Inequality and growth: Why differential fertility matters. Amer. Econ. Rev. 93(4), 10911113 (2003) Deininger, K., Squire, L.: A new data set measuring income inequality. World Bank Econ. Rev. 10(3), 565591 (1996) Forbes, K. J.: A reassessment of the relationship between inequality and growth. Amer. Econ. Rev. 90(4), 869887 (2000) Garbis, I. P.: Inequality, Poverty, and Growth: CrossCountry Evidence: IMF Working Papers. 05/28 (2005) GarciaPeñalosa, C., Turnovsky, S.: Growth and income inequality: a canonical model. Econ. Theory. 28(1), 2549 (2006) Hansen, L. P.: Large Sample Properties of Generalized Method of Moments Estimators. Econometrica, 50, 102954 (1982) Josten, S. D.: Inequality, crime and economic growth: a classical argument for distributional equality. Int. Tax Public Finance, 10(4), 435452 (2003). Josten, S. D.: Social capital, inequality, and economic growth. J. Inst. Theoretical Econ. 160(4), 663680 (2004) Knowles, S.: Inequality and economic growth: the empirical relationship reconsidered in the light of comparable data. J. Devel. Stud. 41(1), 135159 (2005) Kremer, M., Chen, D. L.: Income distribution dynamics with endogenous fertility, J. Econ. Growth. 7(3), 227258 (2002) Kuznets, S.: Economic Growth and Income Inequality. Amer. Econ. Rev. 45(1), 128 (1955) Lee, W. P., Roemer, J. E. P.: Income Distribution, Redistributive Politics, and Economic Growth. J. Econ. Growth. 3(3), 217240 (1998) Li, H., Zou, H.f.: Income Inequality Is Not Harmful for Growth: Theory and Evidence. Rev. of Devel. Econ. 2(3), 318334 (1998) Nahum, R. A.: Income Inequality and Growth: A Panel Study of Swedish Counties 19602000: Institute for Future Studies Arbeitsrapport 2005:3 (2005) Pagano, P.: An empirical investigation of the relationship between inequality and growth. Bank of Italy Temi di Discussione. 536 (2004) Panizza, U.: Income inequality and economic growth: Evidence from American data. J. Econ. Growth. 7(1), 2541 (2002) Partridge, M. D.: Is inequality harmful for growth? Comment. Amer. Econ. Rev. 87(5), 10191032 (1997) Pede, V. O., Florax, R. J. G. M., and Partridge, M. D.: Employment Growth and Income Inequality: Accounting for Spatial and Sectoral Differences. In Annual Meeting of the Agricultural and Applied Economics Association, Milwaukee, 2628 July 2009. 49460 Perotti, R.: Political equilibrium, income distribution and growth. Rev. Econ. Stud. 60(4), 755776 (1993) Perotti, R.: Growth, Income Distribution, and Democracy: What the Data Say. J. Econ. Growth. 1(2), 39 (1996). Persson, T., Tabellini, G.: Is inequality harmful for growth? Amer. Econ. Rev. 84(3), 600621 (1994) Rodriguez, C. B.: An empirical test of the institutionalist view on income inequality: Economic growth within the United States. American J. Econ Sociology. 59(2), 303313 (2000) Rousseau J.J.: Discourse on the origin of inequality. Cress D.A. Indianapolis Cambridge (Original work published 1755) (1992). SalaIMartin, X.: The world distribution of income: Falling poverty and ... convergence, period. Quart. J. Econ. 121(2), 351397 (2006) SalaiMartin, X., and Pinkovskiy, M.: Parametric Estimations of the World Distribution of Income. NBER Working Paper No. 15433 (2009) Sargan J. D.: The Estimation of Economic Relationships Using Instrumental Variables. Econometrica, 26, 393415 (1958) Schumpeter, J.A.: Capitalism, Socialism and Democracy. Harper and Row, New York (1942) Scott, J.: Redistributive Constraints under High Inequality: The Case of Mexico. Research for Public Policy, Inclusive Development, ID072009, RBLACUNDP, New York. (2009). Sen, A.: Inequality Reexamined. Oxford University Press, Oxford (1992) Smith, A.: An Inquiry into the Nature and Causes of the Wealth of Nations. Modern Library, New York (1937) Viaene, J. and Zilcha, I.: Human capital formation, income inequality, and growth. In Eicher, T. S., Turnovsky, S. J., (eds) Inequality and Growth: Theory and Policy Implications, pp. 89117. The MIT Press, Cambridge, London (2003) Voitchovsky, S.: Does the profile of income inequality matter for economic growth? J. Econ. Growth, 10(3), 273296 (2005) Zellner, A., Theil, H.: Threestage least squares: simultaneous estimation of simultaneous equations. Econometrica 30(1), 54–78 (1962) 
URI:  https://mpra.ub.unimuenchen.de/id/eprint/28921 
Available Versions of this Item

The optimal rate of inequality: a general framework for understanding the relationship between income inequality and economic growth. (deposited UNSPECIFIED)
 The optimal rate of inequality: A framework for the relationship between income inequality and economic growth. (deposited 15 Feb 2011 22:33) [Currently Displayed]