Growth, Inequality and Economic Freedom: Evidence from the US States

Abstract

This paper returns to the discussion of how income inequality affects economic growth. The main argument is that economic freedom is likely to affect the association although the relations are theoretically ambiguous. In a panel of 300 observations from five-year periods across the 50 US states, I employ five different measures of inequality. The results show that across measures, the growth effects of inequality turn more positive with more economic freedom. The moderating effects are mainly driven by measures of public sector consumption.

Keywords: Inequality, economic freedom, growth

JEL Classification: O11, O38, O43, P48