Inequality of Opportunity, Inequality of Income and Economic Growth

24 Pages Posted: 8 Apr 2019

See all articles by Shekhar S. Aiyar

Shekhar S. Aiyar

International Monetary Fund (IMF)

Christian Ebeke

Centre d’Etudes et de Recherches sur le Développement International, CERDI-CNRS

Date Written: February 2019

Abstract

We posit that the relationship between income inequality and economic growth ismediated by the level of equality of opportunity, which we identify with intergenerationalmobility. In economies characterized by intergenerational rigidities, an increase in incomeinequality has persistent effects-for example by hindering human capital accumulation-thereby retarding future growth disproportionately. We use several recently developedinternationally comparable measures of intergenerational mobility to confirm that thenegative impact of income inequality on growth is higher the lower is intergenerationalmobility. Our results suggest that omitting intergenerational mobility leads tomisspecification, shedding light on why the empirical literature on income inequality andgrowth has been so inconclusive.

Keywords: Income inequality, Economic growth, Income distribution, Income shocks, Human capital, Intergenerational Mobility, Growth, Gini, inequality, elasticity, unequal access, Brueckner

JEL Classification: D30, D63, O43, O47, E01, E2, O4, Z13, L31

Suggested Citation

Aiyar, Shekhar S. and Ebeke, Christian, Inequality of Opportunity, Inequality of Income and Economic Growth (February 2019). IMF Working Paper No. 19/34, Available at SSRN: https://ssrn.com/abstract=3367419

Shekhar S. Aiyar (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW - HQ 5-403
Washington, DC 20431
United States
202-623-8638 (Phone)

Christian Ebeke

Centre d’Etudes et de Recherches sur le Développement International, CERDI-CNRS ( email )

65 Boulevard Francois Mitterrand
63000 Clermont-Ferrand Cedex 1
France

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