Effects of Income Inequality on Aggregate Output

34 Pages Posted: 20 Apr 2016

See all articles by Markus Brueckner

Markus Brueckner

National University of Singapore (NUS)

Daniel Lederman

World Bank - Latin America and Caribbean Region

Date Written: June 22, 2015

Abstract

This paper estimates the effect of income inequality on real gross domestic product per capita using a panel of 104 countries during the period 1970?2010. The empirical analysis addresses endogeneity issues by using instrumental variables estimation and controlling for country and time fixed effects. The analysis finds that, on average, income inequality has a significant negative effect on transitional gross domestic product per capita growth and the long-run level of gross domestic product per capita. However, the impact varies by the level of economic development, so much so that in poor countries income inequality has a significant positive effect on gross domestic product per capita.

Keywords: Economic Theory & Research, Economic Growth, Educational Sciences, Inequality, Industrial Economics

Suggested Citation

Brueckner, Markus and Lederman, Daniel, Effects of Income Inequality on Aggregate Output (June 22, 2015). World Bank Policy Research Working Paper No. 7317. Available at SSRN: https://ssrn.com/abstract=2621871

Markus Brueckner (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Daniel Lederman

World Bank - Latin America and Caribbean Region ( email )

1818 H Street NW
Washington, DC 20433
United States

HOME PAGE: http://sites.google.com/site/danielledermanworldbank/

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