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Do Rising Top Incomes Lift All Boats?

58 Pages Posted: 24 Dec 2007 Last revised: 24 Jun 2009

Dan Andrews

OECD

Christopher Jencks

Harvard University - Harvard Kennedy School (HKS)

Andrew Leigh

Australian National University - Economics Program, Research School of Social Sciences

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Date Written: June 15, 2009

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, but it takes 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? (June 15, 2009). HKS Working Paper No. RWP09_18. Available at SSRN: https://ssrn.com/abstract=1077730 or http://dx.doi.org/10.2139/ssrn.1077730

Dan Andrews

OECD ( email )

2 rue Andre Pascal
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 (Contact Author)

Australian National University - Economics Program, Research School of Social Sciences ( email )

HC Coombs Building
Australian National University
Canberra, Australian Capital Territory 0200
Australia
+61261251374 (Phone)
+61261250182 (Fax)

HOME PAGE: http://econrsss.anu.edu.au/~aleigh/

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