Do Rising Top Incomes Lift All Boats?
Harvard University - Harvard Kennedy School (HKS)
Australian National University - Economics Program, Research School of Social Sciences
June 15, 2009
HKS Working Paper No. RWP09_18
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.
Number of Pages in PDF File: 58
Keywords: inequality, growth, income distribution, national income
JEL Classification: D31, N10, O57
Date posted: December 24, 2007 ; Last revised: June 24, 2009