Do Rising Top Incomes Lift All Boats?

61 Pages Posted: 10 May 2010

See all articles by Dan Andrews

Dan Andrews

OECD

Christopher Jencks

Harvard University - Harvard Kennedy School (HKS)

Andrew Leigh

Australian House of Representatives Parliament House

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Abstract

Pooling data for 1905 to 2000, we find no systematic relationship between top income shares and economic growth in a panel of 12 developed nations observed for between 22 and 85 years. After 1960, however, a one percentage point rise in the top decile's income share is associated with a statistically significant 0.12 point rise in GDP growth during the following year. This relationship is not driven by changes in either educational attainment or top tax rates. If the increase in inequality is permanent, the increase in growth appears to be permanent. However, our estimates imply that it would take 13 years for the cumulative positive effect of faster growth on the mean income of the bottom nine deciles to offset the negative effect of reducing their share of total income.

Keywords: inequality, growth, income distribution, national income

JEL Classification: D31, N10, O57

Suggested Citation

Andrews, Dan and Jencks, Christopher and Leigh, Andrew, Do Rising Top Incomes Lift All Boats?. IZA Discussion Paper No. 4920, Available at SSRN: https://ssrn.com/abstract=1603369 or http://dx.doi.org/10.2139/ssrn.1603369

Dan Andrews (Contact Author)

OECD ( email )

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Paris Cedex 16, MO 63108
France

Christopher Jencks

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-0546 (Phone)
617-496-9053 (Fax)

Andrew Leigh

Australian House of Representatives Parliament House

Canberra, 2600
Australia

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