Income Inequality and Growth: New Insights from Italy

Njindan Iyke, Bernard and Ho, Sin-Yu (2017): Income Inequality and Growth: New Insights from Italy. Forthcoming in: International Economics (2017)

Abstract

This paper investigates the impact of income inequality on economic growth in Italy during the period of 1967 to 2012. Specifically, using a technique that allows us to sort out long-run impacts from short-run impacts, we investigate whether income inequality benefits or harms growth, after controlling for human capital, labour, physical capital and inflation within an augmented growth model. Amid the existing debatable theoretical and empirical studies, our results suggest that income inequality has a negative and significant impact on growth in the long run. The negative impact of income inequality on growth still exist in the short run. However, the coefficient becomes insignificant. Overall, we gather that inequality hurts growth in the country. Based on this finding, we provide some policy implications.

• Item Type: MPRA Paper
• Language: English
• Keywords: Income inequality; Economic Growth; Italy.
• Subjects: D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Empirical Studies of Economic Growth ; Aggregate Productivity ; Cross-Country Output Convergence; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O52 - Europe

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