Inequality and Growth: The Neglected Time Dimension
affiliation not provided to SSRN
University of Bern - Department of Economics; World Trade Institute
CEPR Discussion Paper No. DP8033
The empirical literature on the relationship between inequality and growth offers a contradictory assessment: Estimators based on time-series (differences-based) variation indicate a strong positive link while estimators (also) exploiting the cross-sectional (level-based) variation suggest a negative relationship. Using an expanded dataset, the present paper confirms this conflicting pattern - and reconciles it on the basis of a simple model. We argue that the differences-based methods are prone to reflect the mostly positive short or medium-run implications of inequality while the level-based estimators also incorporate more negative long-term consequences. Thus, the latter estimates come close to reflecting the adverse overall impact of inequality in the long run.
Number of Pages in PDF File: 30
Keywords: Growth, Inequality, Long-run Effects, Medium-run Effects
JEL Classification: C23, O11, O15, O43working papers series
Date posted: November 22, 2010
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