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econ

omic

inequ

alitygrow

th

How Are Economic Inequalit

and Growth Connected?A Review of Recent Research

Heather Boushey and Carter C. Price October 2014

www.equitablegrowth.

Washington CenterforEquitable Growth

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How Are Economic Inequalityand Growth Connected?A Review of Recent Research

Heather Boushey and Carter C. Price October 2014

Washington CenterforEquitable Growth

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1 Washington Center for Equitable Growth | How Are Economic Inequality and Growth Connected?

Preface

Te Washingon Cener or Equiable Growh is commited o undersanding

wheher and how economic inequaliy affecs economic growh and sabiliy. Our

purpose is hree-old:

Improve our undersanding o equiable growh and inequaliy by encouraging

new academic research and bringing ogeher scholars o share heir work.

Build a sronger bridge beween academics and policymakers o help ensure

esearch on equiable growh and inequaliy is relevan, accessible, and inor-maive o he policymaking process.

Shape a rigorous, ac-based naional debae on equiable growh and inequaliy.

As we consider hese quesions, our firs poin o deparure is o lay ou wha

we know abou he rends in economic inequaliy and economic growh in he

Unied Saes. Tis reporhe las in in a oundaional series on differen aspecs

o equiable growhocuses on wha economiss know abou he macroeco-

nomic effecs o inequaliy on economic growh and sabiliy. In his repor, we

examine wha we know abou wheher here is a measurable effec o inequaliy in

income or asses on economic growh or sabiliy.

Te Washingon Cener or Equiable Growh is commited o acceleraing cu-

ing-edge analysis ino wheher and how srucural changes in he U.S. economy,

paricularly relaed o economic inequaliy, affec growh. We will be working wih

scholars across he Unied Saes and worldwide o reach a beter undersanding

o he dynamics o economic growh and inequaliy and wha policymakers can

achieve in he way o equiable growh. We look orward o he debae.

Heaher Boushey

Execuive Direcor and Chie Economis

Te Washingon Cener or Equiable Growh

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nomic inequaliy, and economic growh and sabiliy. Early empirical work on his

quesion generally ound inequaliy is harmul or economic growh. Improved

daa and echniques added o his body o research, bu he newer lieraure was

generally inconclusive, wih some finding a negaive relaionship beween eco-

nomic growh and inequaliy while ohers finding he opposie.

Te laes research, however, provides nuance ha can explain many o he con-

flicing rends wihin he earlier body o research. Tere is growing evidence ha

inequaliy is bad or growh in he long run. Specifically, a number o sudies show

ha higher inequaliy is associaed wih slower income gains among hose no a

he op o he income and wealh specrum.

Economiss and policymakers oday should no be surprised ha empirical sud-

ies were inconclusive given he broad heoreical (and someimes conradicory)

reasons ha hypohesized inequaliy would boh promoe growh and inhibi

growh. On he one hand, hundreds o years o economic heory has been builon he hypohesis ha inequaliy in oucomes creaes incenives or individu-

als o work hard or be more producive han ohers in order o receive greaer

incomesaciviy ha spurs growh. In addiion, many heorized ha inequaliy

would help individuals become rich enough o save some o heir earnings and

und invesmens necessary o produce economic growh.

On he oher hand, economic heory also suggess he opposieha inequaliy

may inhibi he abiliy o some alened bu less orunae individuals o access

opporuniies or credi, dampen demand, creae insabiliies, and undermine

incenives o work hard, all o which may reduce economic growh. Growing

inequaliy could also generae a relaively larger group o low-income individuals

who are less able o inves in heir healh, educaion, and raining, hereby reard-

ing economic growh.

In his paper, we review he recen empirical economic lieraure ha specifically

examines he effec inequaliy has on economic growh, wellbeing, or sabiliy.

Tis newly available research looks across developing and advanced counries and

wihin he Unied Saes. Mos research shows ha, in he long erm, inequaliy

is negaively relaed o economic growh and ha counries wih less dispariyand a larger middle class boas sronger and more sable growh. Some sudies do

sugges ha in he shor run, inequaliy may spur growh beore hindering i over

he longer erm, bu overall here is growing evidence ha, in he long run, more

equiable socieies are associaed wih higher raes o growh.

There is growing

evidence that

inequality is bad

for growth in th

long run.

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In looking a sudies ha direcly esimae he effec o inequaliy on growh, here

are concerns abou daa qualiy and saisical mehodology.

Te purpose o hese sudies is o esablish wheher economic inequaliy has some

effec on economic growh or sabiliy. For researchers, here are imporan wo

quesions: is here a causal relaionship beween inequaliy and growh? I so, canresearchers acually ideniy his acor, or are hey acually measuring he effec

o some oher acor. Esablishing causaliy is excepionally difficul in he social

sciences and he sandard approach employed or sudying relaionships beween

inequaliy and growh has been o look a he level o inequaliy preceding he

growh period being measured. Tis does no firmly esablish causaliy bu can be

indicaive o i. On he oher hand, he approaches or deecing he relaionship

vary widely by he saisical design, he daa, conrols included. Given enough

ime and flexibiliy in heir specificaions, economiss have demonsraed an abil-

iy o draw a variey o conclusions. Te bes pracices in his area are evolving and

so i is imporan o look a he breadh o he lieraure, raher han ocus on asingle paper or approach.

Imporan as well or he purposes o his paper is hishe laes economic

research we reviewed only examines he oucome o wheher here are resuls or

regressions ha demonsrae posiive or negaive relaionships beween inequal-

iy and economic growh and sabiliy. Tis means he paper canno provide clear

guidance or policymakers on exacly how o address inequaliy or miigae is

effecs on growh. In oher words, he research examined in his paper generally

does no ideniy he channels or mechanisms by which inequaliy affecs growh.

An addiional issue (above and beyond he challenges o how o speciy a model)

is he pauciy o daa o evaluae quesions abou inequaliy and growh. Ideally,

economiss would wan a variey o measures or inequaliy, including earnings,

income, and wealh, ha can be compared across a large number o counries over

a long period o ime. Sadly, such a perec daa se does no exis. Tereore, econ-

omiss are lef o do he bes esimaes wih he daa a hand. Over ime, hough,

he daa ses ha have been used o perorm hese analyses have been improving.

Oher scholars who have examined his lieraure have also come o he conclu-sion ha o inorm policymaking, we need o do more han search or a mechanis-

ic relaionship beween inequaliy and growh. Dani odrik, he ormer Harvard

Universiy proessor now a he Insiue o Advanced Sudies, underscores he

limiaions o his kind o research, arguing ha mehods or analyzing daa ha

We need to do

more than searc

for a mechanisti

relationship

between inequa

and growth.

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span across places and ime are i ll-suied o address he undamenal quesions

abou he relaionship o governmen policy and inequaliy wih growh ou-

comes.2Tis conclusion is echoed by Universiy o Melbourne economis Sarah

Voichovsky in her recen review o he lieraure in he Oxord Handbook on

Economic Inequaliy, where she says:

While data constraints continue to limit the type o empirical analyses that can

be undertaken, investigations that ocus on specific channels generally provide

more robust conclusions than evidence om reduced orm analyses.3

Tis paper does no conain policy advice. Insead, i conains analysis ha largely

demonsraes here are direc, and possibly causal, relaionships beween eco-

nomic inequaliy and growhplaces ha begin wih a lower level o inequaliy

subsequenly end o grow aser and have longer periods o growh han hose

wih a higher level o inequaliy. In uure research, we will ocus on he channels

hrough which inequaliy could or does affec economic growh.

Looking a he U.S. economy over he pas hal-cenury, one rend jumps ou:

Tere has been a susained rise in inequaliy in wages, incomes, and wealh.

Growing inequaliy has led o more income and wealh accruing o hose a he

op o he income ladder, pulling he rich increasingly urher apar rom everyone

else on he oher rungs.4

In he decades jus afer World War II, rom 1947 o 1979, amily incomes grew a

abou he same pace across he income specrum, bu since hen, income or ami-

lies a he very op have grown disproporionaely (See Figure 1). Beween 1947

and 1979, across he income disribuion, average amily incomes grew a a pace o

jus over 2 percen per year.5Ten, in he period rom 1979 o 2007, amilies in he

botom quinile experienced essenially no income growh while amilies in higher

quiniles saw progressively greaer annual income growh. And, i looking a he over-

all increase in incomes, here is a slowdown in income growh. Over he period since

1979 o presen, all income groups have seen slower han 2 percen annual incomegrowh, even hose in he op quinile, alhough in oher research no shown in Figure

1, we see much higher income gains or hose in he op 1 percen. 6Tis is a remark-

able ransormaion in he U.S. economy over a relaively shor period o ime.

Defining the Issue

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FIGURE 1

Back in he mid-1950s, economis Simon Kuznes posulaed ha as he U.S.

economy developed we would see less inequaliy, no more. As Presiden o he

American Economic Associaion in 1955, Kuznes published an aricle in he

American Economics Reviewiled, Economic Growh and Income Inequaliy

where he hypohesized a long-run relaionship beween inequaliy and economic

growh. His daa led him o conclude ha counries would become more unequal

as hey develop, hen, afer reaching a cerain level o economic developmen, hey

would become more equal again. He based his heory on he empirical evidence

he colleced, using U.S. daa rom 1919 o 1945 and or slighly differen years or

oher counries.7

Inequaliy in he Unied Saes did indeed lessen over hose years, bu hindsigh

has shown ha his was an aberraion due o he economic consequences he wo

World Wars and Grea Depression raher han a long-erm rend.8

o his credi,Kuznes was aware o he empirical limiaions o his heory, saying ha his work

was perhaps 5 percen empirical inormaion and 95 percen speculaion.9And

in general he was acuely aware o he difficulies o inerpreing daa as inconro-

verible objecive acs:

Average Annual Change in U.S. Family Income from 1947 to 2007

Between 1947 and 1979, income growth was roughly the same across all income groups,but afterwards income growth was heavily skewed toward those the top of the income ladder.

Source: Economic Policy Institute

2014 Washington Center for Equitable Growth

Bottom 2nd Middle 4th Top Top 5%Quintiles

3.0%

2.0

1.5

1.0

0

0.5

2.5

1947-19791979-2007

Percentchange

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Te valuable capacity o the human mind to simpliy a complex situation in a

compact characterization becomes dangerous when not controlled in terms o

definitely stated criteria. With quantitative measurements especially, the definite-

ness o the result suggests, ofen misleadingly, a precision and simplicity in the

outlines o the object measured.10

As i urns ou, here does no appear o have been a naural rend oward greaer

equaliy. In his painsakingly documened book Capial in he 21sCenury, Paris

School o Economics proessor Tomas Pikety says, here is no naural, spona-

neous process o preven desabilizing, inegaliarian orces rom prevailing perma-

nenly.11Piketys larger body o work, including collaboraions wih Universiy o

Caliornia-Berkeley economis Emmanuel Saez, Universiy o Oxord economis

Anhony Akinson, and ohers working on he World op Incomes Daabase,

demonsraes ha he period o greaer equaliy in he developed economies in

he mid-20h cenury was ransien.

Tis undersanding o curren economic rendshigh earners and he wealhy

pulling away rom he res o he Unied Saes populaionleads o a new

research quesion: I here is no naural movemen away rom high inequaliy,

how does his affec economic growh and sabiliy? In he mid wenieh cen-

ury era o declining inequaliy and srong economic growh, his quesion was

less pressing. Given odays rends o higher inequaliy and slow or non-exisen

income gains or all bu op earners, economiss are ocusing on wheher here is

an ineracion beween he wo.

On he heoreical side, here is a long radiion in economics arguing ha ac-

ing o reduce inequaliy could be counerproducive. Yale Universiy economis

Arhur Okun summarized his view in his 1975 book, Equaliy and Efficiency:

Te Big radeoff, where he posied ha income equaliy and economic effi-

ciency are in ension.12Inequaliy provides incenives or work and invesmen.

In a democracy, hough, he said i may no be poliically expedien o leave living

sandards enirely up o he marke. In his words:

Te contrasts among American amilies in living standards and in material

wealth reflect a system o rewards and penalties that is intended to encourageeffort and channel it into socially productive activity. o the extent that the

system succeeds, it generates an efficient economy. But that pursuit o efficiency

necessarily creates inequalities. And hence society aces a tradeoff between equal-

ity and efficiency.13

If there is no

natural moveme

away from high

inequality, how

does this affect

economic grow

and stability?

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Okuns view is based on he idea ha moneary rewards and penalies drive pro-

ducive aciviy, ha is, i you pay people more (or, perhaps, pay hem a all), hey

will work harder and be more producive. Tese rewards and penalies are opimal

or growh. In his view, any inervenion is disorionary and will, hereore, lower

economic growh. However, in a democracy, policymakers may, or good reason,

implemen policies ha promoe equiy. Okuns purpose was o help policymakersundersand he rade-off beween an efficien marke response and equaliy.

o be clear, Okun was no opposed o policymakers acing o reduce inequaliy.

Te marke needs a place, and he marke needs o be kep in is place, he said.14

aher, he was concerned wih how policymakers should ac, given he economic

realiies o he supposed rade-off. His main concern was wha he ermed, he

leaky bucke, ha is, how much o redisribuive policy leaks ou o he sysem

due o adminisraive coss, reducion in work effor, effecs on saving and inves-

men, and socioeconomic leakages such as claims ha exending unemploymen

benefis will reduce effors o find a job.

O course, Okun was wriing a wha we now know was he end o nearly 30 years

o reduced inequaliy and srong economic gains or amilies across he income

disribuion, as shown in Figure 1. Afer he mid-1970s, he rends changed mark-

edly. In his book, he raher opimisically lays ou ha his goal is o examine when

policymakers will choose equaliy or efficiency:

I shall travel through the places where society deliberately opts or equality, not-

ing the ways these choices compromise efficiency and curb the role o the market,

and examining the reasons why society may choose to distribute some o its

entitlements equally.15

While he idea ha here is a rade-off beween equaliy and efficiency as Okun

pu orh in 1975 may have been a widely acceped idea a he ime, i is no

he case ha heory poins enirely o his conclusion. Much o he radiional

economic hinking Okun relied upon is based on he noion ha people respond

raionally o heir narrowly defined financial ineress in order o maximize uiliy.

Tese heoreical models assume a high degree o similariy beween peoples

preerences and he inormaion hey have available. However, srong simpliy-ing assumpions limi he uiliy o he predicions rom many o hese heories

and economiss have been developing new approaches o accoun or a more

realisic level o complexiy. Behavioral economics is devoed o undersanding

why people make he decisions hey do premised on he ac ha humans do no

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always make economic decisions ha appear o be raional. I is no he purpose o

his paper o summarize his sub-field o economics,16ye i is criical o under-

sand ha inequaliy may no always provide sufficien incenives or people o

work harder despie he implicaions rom some branches o heory.

In general, here are a variey o ways ha inequaliy could affec individualbehavior, almos any o which could have an effec on produciviy or economic

growh ha may no fi ino he ramework o raionaliy as economiss have ra-

diionally defined i. High inequaliy may erode rus in he workplace and lower

produciviy or reduce access o credi, or example, which would slow business

developmen, reduce access o educaion, and decrease consumpion.17Similarly,

individuals may no consider educaion as valuable an invesmen i he reurns on

educaion in a highly sraified sociey were low or very risky.

Ten here is he observaion ha high-income concenraion could lead o a

poliical environmen ha is harmul o economic growheiher by unnel-ing more resources o he elie or hrough exensive redisribuion o income in

ways ha reduce produciviy.18High inequaliy also could dampen consumpion

growh. I people rely on credi and savings, raher han earnings, or much o heir

consumpion, here could be higher economic insabiliy buil ino each and every

business cycle due o speculaive bubbles during economic expansions, and he

effecs o leveraged losses during economic downurns.19

Economiss oday argue ha i may be ha he exen o inequaliy in sociey or

he degrees o dispariies beween he incomes o hose a he op, he middle, and

he botom o he income disribuion which affec Okuns leaky bucke. Economic

heory can provide several hypoheses or how economic growh should change as

inequaliy changes, bu empirical analysis is required o ideniy he ruh.

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Method for Determining Links

Between Economic Inequality

and Growth

Tis secion o our paper reviews he economeric evidence linking economic

inequaliy o economic growh or sabiliy, ocusing specifically on recen papers

ha seek o undersand wheher inequaliy or he shape o inequaliyinequaliy

resuling rom he concenraion o income or wealh a he op or deprivaion a

he botomaffec economic growh and sabiliy. Tis research includes evi-

dence rom he Unied Saes, wealhy economies, and developing economies. We

divide he lieraure ino hree groupings:

Early lieraure hrough 1996, generally summarized in an aricle by econo-

mis oland Benabou, hen a New York Universiy and now a PrinceonUniversiy.20

A middle-era lieraure, hrough 2009, generally summarized by Universiy o

Melbourne economis Sarah Voichovsky.21

More recen lieraure ha has emerged since 2010.

Tere are a variey o empirical challenges wih his lieraure. Firs, as Columbia

Universiy economis Xavier Sala-i-Marin demonsraed by running wo mil-

lion growh regressions across a variey o variables and specificaions, he resuls

srongly depend on he model.22A wide variey o acors can be pu ino a regres-

sion and ound o be saisically significanly associaed wih growh, making i

excepionally difficul o discern he ruh abou wha affecs growh. Tis work

highlighs he challenge o ully undersanding o he inequaliy-growh relaionship.

Because o he complex array o possible ineracions, economic heory does

no supply a bes way o es he relaionship beween inequaliy and growh.

Macroeconomic heory poins o ways ha inequaliy in erms o income and

wealh will affec he macroeconomy hrough heir effecs on consumpion, sav-ing, and invesmen. Ideally, researchers need daa on boh income and wealh o

ruly undersand how inequaliy in each affecs economic growh and sabiliy, as

boh are imporan in macroeconomic heory. Ye comparable daa across coun-

ries on wealh disribuion are scan, leading researchers o ocus heir atenion

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on more readily available, bu ofen lower qualiy, income inequaliy daa more so

han heory warrans.23

Second, here are a series o measuremen issues. Does i mater how economic

inequaliy is measured, as a poin esimae or hrough measures ha describe he

shape o he disribuion o inequaliy? Do hese differen measures affec heoucome differenly? Wha measure o growh should be used? Gross Domesic

Produc, median income, or some oher measure? (See box.)

Measures of economic inequality

Economic inequaliy is a uncion o he disribuion o income, wealh, or oher

economic acors. As such, here are a wide variey o inequaliy measures ha

seek o characerize inequaliy.24Each meric reduces inequaliy o a single num-

ber, which limis he inormaion ha can be provided. Ye aken ogeher, mul-

iple measures can provide a exured undersanding o he shape o he economicdisribuion or a variey o acors. Here are several differen measures:

Te Gini coefficien is one o he mos common measures o inequaliy because

o is simpliciy o compue. I ranges rom zero, represening perec equaliy, o

one, which represens complee concenraion.

Te Teil index is a measure o dispersion ha is requenly applied o inequal-

iy. I oo can be normalized o range rom zero or perec equaliy o one or

complee concenraion. Te Teil index has he advanage ha i can be decom-

posed ino inequaliy wihin groups and inequaliy beween groups, allowing or

analysis o he demographic componens o inequaliy.

Comparisons o perceniles, deciles, and quariles are requenly used as measures o

economic inequaliy. Te 90-10 raio is a comparison o he income o he op decile

(he 90hpercenile) o he income o he botom decile (he 10hpercenile), which

can provide a measure o he spread o incomes and hence inequaliy.

Finally, here are sampling quesions concerned wih wheher advanced and develop-ing counries should be pooled ogeher or reaed separaely. While sudies ypically

find negaive saisical relaionships beween inequaliy and growh when looking

across a mix o counries, his may no be he righ way o go abou he regression

analysis. Should democraic and non-democraic counries be examined ogeher?

Teoreically, here are differen channels hrough which inequaliy could affec

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growh, depending on he poliical srucure o each counry. However, given ha

inequaliy in he Unied Saes looks increasingly similar o he high inequaliy o

developing counries, we may have much o learn rom heir experiences.

Forunaely, he daa ha economiss can use o undersand his imporan

relaionship beween inequaliy and growh has improved over ime, as have hemehodologies applied o sudy he relaionship beween he wo rends. Te nex

secion will work hrough he hisory o hese rends in he economic lieraure on

inequaliy and growh and he curren sae o our undersanding.

The early li terature

In a 1996 review o sudies on he relaionship beween inequaliy and growh, econo-

mis oland Benabou, hen a New York Universiy, ound ha en o hireen papers

he reviewed ha looked direcly a his relaionship ound a consisen, saisically

significan, negaive relaionship beween inequaliy and growh, wo papers ound

a generally negaive relaionship beween inequaliy and growh bu no a consisen

magniude or a saisically significan relaionship, and one paper ound no relaion-

ship beween inequaliy and growh.25In oher words, almos all o hese sudies ound

ha greaer inequaliy led o slower economic growh. Tese papers used a variey

o measures o inequaliy including he Gini coefficien or income, he Gini coeffi-

cien or land ownership, he Tiel index or income, he share o income going o he

middle quinile, and he share o income going o he op quiniles. (See he Appendix

or a complee lis o he papers reviewed.)

Some criics o his early work noe ha many o hese sudies looked a boh

developed and developing counries ogeher. Tere were also concerns abou

omited variable biasha is, how variables no included in he regression may

bias he findingsand subsanial debae abou which conrols should be used.

Conrols deermine wha acors migh be influencing growh regardless o inequal-iy. Te conrols in hese sudies ended o include he counrys coninen and ype

o governmen, among oher acors. Addiionally, here were general quesions

abou he qualiy and consisency o he daa being used in hese early sudies.

Evidence of Links Between

Inequality and Growth

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The middle era li terature

o resolve issues relaed o daa qualiy and consisency, World Bank economis

Klaus Deininger and Former Presiden o he Global Developmen Nework and

World Bank economis Lyn Squire consruced and released in 1996 an exensive

daa se o inequaliy esimaes.26

Teir iniial analysis o his daa ound ha he rela-ionship beween income inequaliy and growh was no saisically significan.27

Tis daa and more complex saisical echniques allowed or a new generaion o

sudies looking a inequaliy and growh ha could overcome some o he criiques

o earlier work. While income inequaliy was no ound o have a large negaive

impac on growh, in oher work using his daa, Deininger and Squire ound ha

unequal disribuion o asses significanly impedes economic growh.28

In a 2008 mea-analysis o sudies on income inequaliy as measured by he Gini

coefficien and growh in per capia GDP, economiss Laura de Dominicis and

Henri L.F. de Groo o Vrije Universiy Amserdam and aymond J.G.M. Floraxo Purdue Universiy noe he rend or older sudies (hose in he mid-1990s and

beore) o find a negaive relaionship bu or some laer sudies o find a posi-

ive relaionship.29Tey sugges an approach o help resolve he conusion in he

lieraure such as using higher qualiy daa and resricing he analysis o a more

homogeneous se o counries or o regions wihin a counry. Ten, in a 2009 li-

eraure review, economis Sarah Voichovsky o he Universiy o Melbourne sum-

marized many o his second wave o sudies and ound ha here had no been a

srong consensus on wheher and how income inequaliy affecs economic growh

in general, bu ha high inequaliy in wealh and human capial developmen (he

educaion, raining, and healh o people) were consisenly associaed wih lower

growh in he uure.30

Some o he disagreemen among hese sudies sems rom mehodological di-

erences, Voichovsky noes. In her own work, she ound ha he ype o inequal-

iy is imporan when assessing he impac on growh. In an earlier paper rom

2005, she ound ha he daa indicae differen oucomes or economic growh

or inequaliy a differen levels o he income disribuion.31Specifically, she

ound ha a high level o inequaliy a he botom o he income disribuion was

generally associaed wih lower subsequen economic growh bu ha, undersome specificaions, higher inequaliy a he op could be associaed wih higher

economic growh. (See Appendix.)

Ohers also find a nuanced relaionship. An of-cied sudy by Harvard

Universiys ober Barro ound mixed evidence o a relaionship beween

High inequality

in wealth and

human capital

development

(the education,

training, and

health of people

were consistent

associated with

lower growth in

the future.

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inequaliy and growh wih he relaionship changing or differen levels o GDP.32

His resul or rich counries was a posiive relaionship beween inequaliy and

growh bu his finding was exremely sensiive o his choice o conrols. Tese

resuls could sugges ha inequaliy may be negaively associaed wih growh

in poor counries and posiively associaed wih growh in rich counries, again

bringing o he oreground he imporance o he counries in he sample.33

Massachusets Insiue o echnology economiss Abhiji Banerjee and Esher

Duflo also find nonlinear relaionships beween lower inequaliy and sronger

growh ha vary depending on changes in he overall level o inequaliy or he

level o developmen in a counry.34Nancy Birdsall and Juan Luis Londono,

presiden o he Cener or Global Developmen and economis or he Naional

Universiy o Colombia, respecively, examined Lain American counries and

ound asse inequaliy o be negaively relaed o economic growh, mean-

ing greaer inequaliy in asses is associaed wih slower economic growh.35

Ineresingly, because he level o inequaliy in he Unied Saes is approachingheighs generally only ound in he developing world, he rends idenified or

developing counries may be more applicable han hose o developed naions.

More recent literature, post 2010

When looking a he more recen lieraure o inernaional comparisons, he

iniial srong consensus ha inequaliy and growh were negaively relaed has

been replaced by a period o exensive debae over he mehodologies and daa

ollowed by wha appears o be a new, somewha nuanced heme emerging ha

high inequaliy is bad or economic growh over long ime horizons and ha high

inequaliy is paricularly bad or hose on he botom o he income specrum. Bu

in he shor run, mos o he research agrees ha high inequaliy can be associaed

wih aser economic growh in general, bu he benefis end o flow o he op or

ha shor period o ime.

In 2011, Dan Andrews, an economis a he Organisaion or Economic

Cooperaion and Developmen, Chrisopher Jencks a Harvard Universiy,

and Andrew Leigh a he Ausralian Naional Universiy, looked a inequaliyin he orm o concenraion a he op porion (primarily he op en percen

hough hey also esed he op one percen) o he income disribuion and, like

Voichovskys 2005 paper, ound higher income inequaliy is associaed wih

higher economic growh when looking only a daa rom afer 1960.36However,

The level of

inequality in the

United States

is approaching

heights general

only found in th

developing wor

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hese resuls do no hold i capial gains income is included and he resuls were

no robus or he op one percen. Teir analysis, however, leads o he conclusion

ha i akes 13 years o growh or he botom 90 percen o he income disri-

buion o be as well off as hey would be wih lower inequaliy.37Because o he

relaively small esimaed benefi o general growh relaive o he sampling errors,

Andrews, Jencks, and Leigh noe ha []he claim ha inequaliy a he op o hedisribuion eiher benefis or harms everyone hereore depends on long-erm

effecs ha we canno esimae very precisely even wih hese daa.38

Economiss Daniel Haler and Jose Zweimuller o he Universiy o Zurich, and

Manuel Oechslin o he Universiy o Bern idenified mehodological differences

in he papers ha find a posiive relaionship beween inequaliy and growh and

hose ha find a negaive relaionship.39Specifically, hose papers ha examine

inequaliys effec on growh over ime wihin counries end o find a posiive

relaionship bu hose ha use cross-secional comparisons find a negaive rela-

ionship. Tese resuls imply ha a sudys mehodological choices will deerminewhich effecs dominae he resuls and ha here are differen effecs relaed o

inequaliy driving shor-erm and long-erm paterns in growh. Tey posi ha

he ime-difference mehods are deecing shor-erm posiive effecs o growh,

while he cross-secional mehods pick up he long-erm negaive effecs or

growh when here is persisenly high or growing inequaliy.

Diego Grijalva o he Universiy o Caliornia-Irvine finds similar differences

beween he long-run and shor-run rends, hough he noes ha he shor-

erm resuls are non-linear and hereore he relaionship beween growh and

inequaliy in he shor erm is no sricly posiive.40Tis means some economic

inequaliy (no exreme inequaliy hough) may have some posiive shor- and

medium-erm effecs on economic growh, bu in he long run high levels o

economic inequaliy end o be derimenal o economic growh. Tis is paricu-

larly relevan o he Unied Saes currenly because o he high level o inequaliy

relaive o oher wealhy naions.

Te ime scale o growh is clearly an imporan acor. Mos sudies look a he

level o growh insead o he duraion o growh. o beter undersand he ime

dimension o hese rends, Inernaional Moneary Fund economiss Andrew G.Berg and Jonahan D. Osry looked a periods o growh insead o fixed dura-

ions. Tey find ha counries wih more equal income disribuions end o

have significanly longer growh spells.41Inequaliy ouweighed oher acors in

explaining such susainable growh across 174 counries. Indeed, inequaliy was a

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sronger deerminan o he qualiy o economic growh han many oher com-

monly sudied acors ha were also included in Berg and Osrys model, such as

exernal demand and price shocks, he iniial income o he counry (did i sar

ou very poor or wealhy?), he insiuional make-up o he counry, is openness

o rade, and is macroeconomic sabiliy.42Focusing on he quesion o sabiliy

also underscores a key poin ha inequaliy may indirecly affec economic growhin prooundly imporan ways.

In a 2014 exension o his work, Osry, Berg, and heir IMF colleague

Charalambos sangarides include an analysis o he impacs o redisribuion, as

well as marke inequaliy. Tey find ha economic growh is lower and periods o

growh are shorer in counries ha have high inequaliy as measured by he Gini

coefficien o income afer axes and ransers.43In he same paper, he research-

ers show ha ransers (redisribuions o income rom upper o lower income

individuals) do no harm economic growha leas up o a poin consisen wih

policies in oher wealhy naions. Tis mos recen work provides srong evidenceha higher levels o income inequaliy are derimenal o long-erm economic

growh and ha he policies some naions have aken o redress inequaliy no

only do no adversely impac growh bu, insead, spur aser growh. Noably, his

finding applies o boh developed and developing counries.

Evidence from across states within the United States

Several sudies specifically es he relaionship beween inequaliy and growh

wihin he Unied Saes, using a range o saisical echniques. Analysis o he

U.S. sae-by-sae daa offers advanages over he inernaional daa among

counries because i is more reliable in qualiy and consisency, and is greaer in

lengh o coverage. Bu he individual U.S. saes are no ideal unis o observaion

because, among oher hings, he poliical boundaries do no necessarily coincide

wih regional economies.

Sill, much can be learned rom sae-level analysis. Ugo Panizza o he U.N.

Conerence on rade and Developmen nds a negaive relaionship beween

inequaliy and growh in he Unied Saes.44

A larger share o income accruing ohe middle class is associaed wih higher growh raes, according o his analysis,

while higher inequaliy (measured by he Gini coefficien or by he raio o income

shares o he lowes quinile o he highes quinile) leads o lower growh raes.

Panizza esimaes ha a one sandard deviaion increase in he income share o he

This most recen

work provides

strong evidence

that higher leve

income inequal

are detrimental

to long-term

economic grow

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middle quinile is associaed wih growh raes beween 0.1 and 0.6 percenage

poins, which ranslaes ino growh being abou 6 percen higher, over a decade.

As wih some o he inernaional research, using daa or 48 saes rom 1960 o

2000, Mark Parridge o Ohio Sae Universiy nds ha in he shor run, inequal-

iy is posiively relaed o growh while in he long run, he income share o hemiddle class is posiively associaed wih more robus growh.45Economiss

Mark Frank and Donald Freeman o Sam Houson Sae Universiy, using meh-

ods ocusing on longer run rends, nd a srong, negaive relaionship beween

inequaliy and growh.46Tough, Mark Frank released a subsequen sudy using

new sae level inequaliy and growh daa rom 1945 o 2004 ha ound higher

income concenraion increased shor run growh.47Tis second paper by Frank is

analogous o he Andrews, Jencks, and Leigh hough a he sae level and high-

lighs some o he nuances o he relaionship beween inequaliy and growh.

In a recen book, Jus Growh: Inclusion and Prosperiy in AmericasMeropolian egions, Chris Benner, associae proessor o communiy and

regional developmen a Universiy o Caliornia-Davis, and Manuel Pasor,

proessor o American sudies and ehniciy a Universiy o Souhern Caliornia,

show ha less economic inequaliy wihin regional economies is linked o regional

prosperiy.48Tey show wih boh quaniaive and qualiaive mehods why and

how regional economic growh is associaed wih less inequaliy across mero-

polian regions in he Unied Saes, concluding ha economic growh and alling

inequaliy are no a conradicion bu a necessiy.

aking a differen ack, economiss oy van der Weide o he World Bank and

Branko Milanovic o he Ciy Universiy o New York in a 2014 paper look a

income growh insead o gross domesic produc or inequaliy measures a di-

eren poins along he income disribuion, using sae-level daa in he Unied

Saes. Tey find ha high levels o economic inequaliy decrease income growh

or hose a he botom o he income disribuion.49Tey also look a wheher he

resuls sem rom inequaliy rom a concenraion o income a he op or rom

deprivaion a he botom and find ha boh ypes o inequaliy were associaed

wih slower income growh a he botom.

Ineresingly, van der Weide and Milanovic also find ha a high level o inequal-

iy a he botom o he income ladder is associaed wih slighly aser income

growh a he op o he ladder. Unlike he daa ha Pikety and his colleagues

have pu ogeher, heir daaU.S. Census daa rom 1960 o 2010 or saeshas

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he disadvanage o no providing income daa or individuals a he very op o

he income disribuion. Ye he advanage o Milanovic and van der Weides daa

is ha i is available going back o 1960 and is based on a survey o all households,

so he researchers know a good deal abou hem in erms o deailed demographic

daa and inormaion abou jobs, indusries, occupaions and oher acors,

whereas Pikety and Emmanuel Saezs U.S. daa on incomes a he very op is orax unis and provides no deails on demographics or oher characerisics.50

Milanovic and van der Weides research is consisen wih earlier work by hen

Universiy o Massachusets-Amhers economis Jeffrey Tompson (now a he

Federal eserve Board in Washingon, DC) and Congressional Budge Office

analys Elias Leigh, who looked a he effecs o inequaliy on incomes across

households.51Tey ound ha increases in he incomes o hose a he op o he

income disribuion, measured by eiher he op 10 or 1 percen, are associaed

wih declines in incomes o low and middle income households.

Te resuls o sudies o he relaionship beween economic inequaliy and growh

ha ocus on he Unied Saes mirror hose o he inernaional sudiesinequal-

iy is associaed wih lower long-erm growh and is paricularly associaed wih

lower income growh or hose no a he op o he income disribuion. Bu, as

he inernaional resuls indicae, he resuls or he Unied Saes imply ha eco-

nomic growh, in he shor run, may no be harmed by high levels o inequaliy.

Inequality is

associated with

lower long-termgrowth and

is particularly

associated with

lower income

growth for thos

not at the top

of the income

distribution.

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Economic heory suppors conflicing narraives abou he poenial impac o

economic inequaliy on growh. Tere are some ways ha inequaliy could boos

growh and oher ways ha i could reard growh. Furhermore, here are numerous

possible mechanisms ha could relae inequaliy o growh and many o hese chan-

nels would have conflicing oucomes. Tus, because heory canno provide srong

guidance, i is imperaive o use daa and analysis o undersand he relaionships.

Te empirical lieraure has been evolving as new daa become available and be-

er daa analysis mehods are applied. Iniially, here was a srong body o lieraure

implying ha economic inequaliy was bad or economic growh. Tese iniial sudieshad daa and mehodological limiaions ha were addressed in a second generaion

o empirical papers on he subjec. Tis second generaion o papers had conflicing

resuls. Some ound a srong negaive relaionship beween inequaliy and growh,

while ohers ound he opposie by using differen approaches.

Te likely source o his conflic has been idenified as one o imingsudies ha

look a he longer-erm growh implicaions find ha inequaliy adversely affecs

growh raes and he duraion o periods o growh, while hose ha ocus on

shor erm growh find ha inequaliy is no harmul and may be associaed wih

aser growh. Furhermore, sudies ha look a he impac o inequaliy on differ-

en levels o he income disribuion have ound ha inequaliy is paricularly bad

or he income growh o hose no a he op.

While inequaliy and growh research may be approaching a new consensus on

he general implicaions o inequaliy on economic growh, more work is needed

o ully undersand he specifics o how inequaliy affecs growh. In paricular,

now ha he Unied Saes is approaching a level o inequaliy ha is very rare

among developed economies and more closely resembles a developing economy,

which mechanisms apply? Tese are quesions ha will require coninued updaeso he daa and mehods.

Conclusion

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Heather Bousheyis Execuive Direcor and Chie Economis a he Washingon

Cener or Equiable Growh and a Senior Fellow a he Cener or American

Progress. Her research ocuses on economic inequaliy and public policy, spe-

cifically employmen, social policy, and amily economic well-being. Boushey

previously served as an economis or he Join Economic Commitee o he

U.S. Congress, he Cener or Economic and Policy esearch, and he Economic

Policy Insiue. She received her Ph.D. in economics rom he New School or

Social esearch and her B.A. rom Hampshire College.

Carter C. Priceis a Senior Mahemaician and Associae esearch Direcorocusing on quaniaive analysis o U.S. economic policy. Prior o joining he

Washingon Cener or Equiable Growh, He was a Mahemaician a he RND

Corporaion where he worked on policy issues relaed o healh, deense, he

environmen, and domesic securiy. Price earned a Ph.D. in Applied Mahemaics

rom he Universiy o Maryland, College Park and earned a B.A. in Mahemaics

and Physics rom Hendrix College.

Te auhors would like o hank Jeff Tompson, ober Lynch, Ben Zipperer,

Nick Bunker or commens, and Ed Paisley, David Evans, and Bridge Ansel or

heir help making his paper read well and look good. We would also like o hank

Adam Hersh who helped wih an earlier ieraion o his review. Te errors are, o

course, ours alone.

About the Authors

Aknowledgements

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Endnotes

1 Simon Kuznets, Economic Growth and Income Inequal-ity,American Economic ReviewXLV, no. 1 (March 1955):18, http://www.aeaweb.org/aer/top20/45.1.1-28.pdf.

2 Dani Rodrik, Why We Learn Nothing from RegressingEconomic Growth on Policies(Cambridge, MA: HarvardKennedy School, 2005).

3 Sarah Voitchovsky, Inequality, Growth and SectoralChange, in The Oxford Handbook of Economic Inequality,ed. Wiemer Salverda, Brian Nolan, and Timothy M.Smeeding (Oxford Handbooks in Economics, 2009), 550.

4 Emmanuel Saez, Striking It Richer: The Evolution of Top In-comes in the United States (Updated with 2011 Estimates).

Berkeley, CA: University of California, Department ofEconomics, January 23, 2013.

5 Mishel, Lawrence, Josh Bivens, Elise Gould, and HeidiShierholz. The State of Working America, 12th Edition,Economic Policy Institute, September 2012.

6 Emmanuel Saez, Striking It Richer: The Evolution of Top In-comes in the United States (Updated with 2011 Estimates).

7 Simon Kuznets, Shares of Upper Income Groups in Incomeand Savings(Cambridge, MA: National Bureau of Eco-nomic Research, 1953).

8 Thomas Piketty, Capital in the 21st Century, trans. ArthurGoldhammer (Cambridge, MA: Harvard University Press,2014).

9 Kuznets, Economic Growth and Income Inequality, 26.

10 Simon S. Kuznets, National Income 1929-1932(Washing-ton, D.C.: Senate Document No. 124, 73rd Congress, 2ndSession., n.d.), 5.

11 Thomas Piketty, Capital in the 21st Century.

12 Arthur M. Okun, Equality and Efficiency: The Big Tradeoff(Washington, DC: Brookings Institution Press, 1975).

13 Ibid., 1.

14 Ibid., 119.

15 Ibid., 5.

16 Sendhil Mullainathan, and Richard H. Thaler, BehavioralEconomics. MIT Department of Economics Working Paper0027 (October 23, 2000). http://papers.ssrn.com/sol3/

papers.cfm?abstract_id=245828.

17 For examples of how inequality may affect the econo-my, see: Roland Benabou, Inequality and Growth, inNBER Macroeconomics Annual 1996, vol. 11 (Cambridge,MA: MIT Press, 1996), 1192.

18 Raghuram Rajan, Fault Lines: How Hidden FracturesStill Threaten the World Economy(Princeton: PrincetonUniversity Press, 2010).

19 Atif Mian, Kamalesh Rao, and Amir Sufi, HouseholdBalance Sheets, Consumption, and the Economic Slump(National Bureau of Economic Research, June 2013);Barry Z Cynamon and Steven M. Fazzari, Inequality andHousehold Finance During the Consumer Age, n.d., http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2205524.

20 Roland Benabou, Inequality and Growth, in NBERMacroeconomics Annual 1996, vol. 11 (Cambridge, MA:MIT Press, 1996), 1192.

21 Voitchovsky, Inequality, Growth and Sectoral Change.

22 Xavier Sala-i-Martin, I Just Ran Two Million Regressions,American Economic Review87, no. 2 (May 1997): 17883,

http://faculty.lebow.drexel.edu/lainczc/cal38/Growth/SalaiMartin_1997.pdf.

23 Anthony Atkinson and Andrea Brandolini, Promiseand Pitfalls in the Use of Secondary Data-Sets: IncomeInequality in OECD Countries as a Case Study,Journalof Economic Literature39, no. 3 (September 2001):77199, http://pubs.aeaweb.org/doi/pdfplus/10.1257/

jel.39.3.771.

24 Paul D. Allison, Measures of Inequality.AmericanSociological Review43, no. 6 (December 1978): 86580.http://personal.psc.isr.umich.edu/yuxie-web/files/pubs/Articles/Allison1978.pdf.

25 Benabou, Inequality and Growth.

26 Klaus Deininger and Lynn Squire, New Data Set Mea-suring Income Inequality, World Bank Economic Review

10, no. 3 (1996): 56591.

27 Klaus Deininger and Lyn Squire, New Ways of Lookingat Old Issues: Inequality and Growth.Journal of Devel-opment Economics57 (1998): 25987.

28 Klaus Deininger and Lyn Squire, New Ways of Lookingat Old Issues: Inequality and Growth,Journal of Devel-opment Economics57 (1998): 25987; Klaus Deiningerand Lyn Squire, Economic Growth and Income Inequal-ity: R eexamining the Links,Finance & Development,March 1997, http://www.felagshyggja.net/deiscu.pdf.

29 De Dominicis, Laura, Henri L.F. de Groot, and RaymondJ.G.M. Florax. Growth and Inequality: A Meta-Analysis.Tinbergen Institute Discussion PaperTI 2006064/3(2006). http://www.econstor.eu/handle/10419/75237.

30 Voitchovsky, Inequality, Growth and Sectoral Change.

31 Sarah Voitchovsky, Does the Profile of IncomeInequality Matter for Economic Growth?,Journal ofEconomic Growth10, no. 3 (September 1, 2005): 27396,doi:10.1007/s10887-005-3535-3.

32 Robert Barro, Inequality and Growth in a Panel ofCountries,Journal of Economic Growth5 (2000): 532,http://scholar.harvard.edu/files/barro/files/inequal-ity_growth_1999.pdf.

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33 One thing that the Barro notes in this paper is thatinequality is correlated with fertility (children born perwoman) and that when fertility is omitted as a controlvariable, the relationship between inequality andgrowth becomes significant and negative. Omittingfertility also changes the papers central finding thatinequality and growth are positively related for wealthycountries. Thus, his central finding may be not due tothe inequality variable but instead a result of whetheror not fertility is included in the regression. Thishighlights a general problem with the specificationsof regression models when studying the relationship

between economic inequality and growth.

34 Abhijit Banerjee and Esther Duflo, Inequality andGrowth: What Can the Data Say?, Journal of EconomicGrowth8 (2003): 26799.

35 Nancy Birdsall and J.L. Londono, No Tradeoff: EfficientGrowth Via More Equal Human Capital in Latin America. InBeyond Tradeoffs: Market Reforms and Equitable Growth inLatin America, edited by Nancy Birdsall, Carol Graham, andRichard Sabot. Washington, DC: Brookings Institution Pressand Inter-American Development Bank, 1998.

36 Dan Andrews, Christopher Jencks, and Andrew Leigh,Do Rising Top In comes Lift All Boats?, The BE Journalof Economic Analysis & Policy11, no. 1 (2011), http://www.degruyter.com/view/j/bejeap.2011.11.issue-1/bejeap.2011.11.1.2617/bejeap.2011.11.1.2617.xml.

37 The 13 year estimate may not be directly applicable tothe United States because the level of inequality hascontinued to grow. Thus, the time for the bottom 90percent of the population to be equally well off hascontinued to grow, possibly asymptotically.

38 Ibid., 30.

39 Daniel Halter, Manuel Oechslin, and Josef Zweimller,Inequality and Growth: The Neglected Time Dimen-sion,Journal of Economic Growth19, no. 1 (March 1,2014): 81104, doi:10.1007/s10887-013-9099-8.

40 Diego F. Grijalva, Inequality and Economic Growth: Bridg-ing the Short-Run and the Long-Run, November 29, 2011,http://escholarship.org/uc/item/4kf1t5pb.

41 Andrew Berg and Jonathan Ostry, Inequality andUnsustainable Growth(Washington, DC: International

Monetary Fund, 2011).

42 Ibid.

43 Jonathan D. Ostry, Andrew Berg, and CharalambosG. Tsangarides, Redistribution, Inequality, and Growth,Discussion Note, IMF Staff Discussion Note (Wash-ington, D.C.: International Monetary Fund, February2014), http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf.

44 Ugo Panizza, Income Inequality and Economic Growth:Evidence from American Data, Journal of EconomicGrowth7, no. 1 (2002): 2541.

45 Mark Partridge, Does Income Distribution Affect U.S.State Economic Growth,Journal of Regional Science45(2005): 36394. This is consistent with Francisco Rodri-guez of Wesleyan Universitys research, which found

that higher inequality may boost growth in the shortrun but is bad for economic growth in the long run,although in a developing country framework. FranciscoRodriguez, Inequality, Economic Growth and EconomicPerformance,A Background Note for the World Develop-ment Report, 2000.

46 Mark W. Frank and Donald Freeman, Relationship ofInequality to Economic Growth: Evidence from U.S. State-Level Data, Pennsylvania Economic Review11 (2002): 2436,http://www.shsu.net/~tcq001/paper_files/wp03-01.pdf.

47 Mark W. Frank, Inequality and Growth in the UnitedStates: Evidence from a New State-Level Panel ofIncome and Inequality Measures. Economic Inquiry47,no. 1 (January 2009): 5568.

48 Chris Benner and Manuel Pastor,Just Growth: Inclusionand Prosperity in Am ericas Metropolitan Regions(New

York: Routledge, 2012).

49 Van der Weide, Roy, and Branko Milanovic. InequalityIs Bad for Growth of the Poor (But Not for That of theRich). World Bank Policy Research Working Paper 6963(July 2014). http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2014/07/02/000158349_20140702092235/Rendered/PDF/WPS6963.pdf.

50 Thomas Piketty and Emmanuel Saez, Income Inequalityin the United States, 19131998, The Quarterly Journalof Economics118, no. 1 (February 2003): 139.

51 Jeffrey Thompson and Elias Leight, Searching for theSupposed Benefits of Higher Inequality: Impacts of RisingTop Shares on the Standard of Living of Low and Middle-Income Families(Amherst: Political Economy ResearchInstitute - University of Massachusetts, Amherst, 2011),http://www.peri.umass.edu/fileadmin/pdf/working_pa-

pers/working_papers_251-30

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Appendix

In a 1996 review o he early lieraure on he relaionship beween economic

inequaliy and economic growh, economis oland Benabou a Princeon

Universiy ound ha mos sudies concluded here was a negaive and significan

relaionship (meaning higher inequaliy was associaed wih lower economic

growh). Tese sudies used a variey o differen daa sources and measures o

economic inequaliy. able 1 conains inormaion abou he sudies in Benabou

ha looked direcly a he relaionship beween economic inequaliy and growh.

ABLE 1

Alesina-Rodrik (94)1

Benhabib-Spiegel (96)2

Bourguignon (94)3

Brandolini-Rossi (95)4

Clarke (92)5

Deininger-Squire (95)6

Keefer-Knack (95)7

Perotti (92)8

Perotti (94)9

Perotti (96)10

Persson-Tabellini (92)11

Persson-Tabellini (94)12

Venieris-Gupta (86)13

Negative

Negative

Negative

None

Negative

Negative

Negative

Negative

Negative

Negative

Negative

Negative

Negative

Yes

No

Yes

No

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Income and land Ginis

Q3 income share

Q1,Q1+Q2,Q5 income shares


Income Gini, Theil, and others


Income and land Ginis, Q3 income share

Q3 income share

Q1+Q2, Q3 income shares

Q3+Q4 income share

Land Gini and Q3 income share

Q3 and Q5 income shares

Q3 income share

1

2

3

4

5

6

7

8

9

10

11

12

13

Early Empirical Studies of Inequality and GrowthNearly all the early studies of the relationship between inequality and growth up until1996 found that higher inequality was associated with lower growth.

Source: Benabou, Roland. Inequality and Growth. NBER Macroeconomics Annual, 1996, 1174.


Paper

Inequality/

Growth

Statistically

Significant

Measure

of Inequality

Note: The table in Benabou (96) has a total of 23 papers, but only 13 of those look specifically at the relationship between income/wealth

inequality and growth. We only report these 13 papers that contained inequality and growth results from Table 2 in Benabou (96). Most ofthe remaining ten looked at related concepts such as the relationship between human capital attainment and growth.

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In 2009, Sarah Voichovsky o he Universiy o Melbourne reviewed he sub-

sequen inequaliy and growh lieraure and ound a slighly differen sory. In

response o he early empirical work on he subjec, a variey o new sudies esed

differen approaches o assessing he relaionship beween inequaliy and growh

wih less consisen resuls han he earlier work. able 2 is a summary o he

papers included in Voichovskys review.TABLE 2

Endnotes

Banerjee-Duflo (03)14

Barro (00)15

.

Castello-Domenech (02)16

Deininger-Squire (98)17

Forbes (00)18.

Knowles (05)19

Voitchovsky (05)20

Nonlinear (negative)

Positive (rich countries),Negative (poor countries)

Negative

Negative

Positive (shortterm growth)

Negative

Positive (top percentile),Negative (bottom percentile)

Yes

No, Yes.

Yes

Yes

Yes.

Yes

Yes

Multiple

Multiple.

Human Capital Gini

Multiple

Multiple.

Income Gini

Gini, Percentile RatiosTop/Bottom

1

2.

3

4

5.

6

7

Middle-Era Empirical Studies of Inequality and GrowthThe second wave of studies on economic inequality and growth had mixed findings.

Source: Voitchovsky, Sarah. Inequality and Economic Growth. In The Oxford Handbook of Economic Inequality, edited by Wiemer Salverda,Brian Nolvan, and Timothy M. Smeeding, 2009.


Paper

Inequality/

Growth

Statistically

Significant

Measure

of Inequality

1 Alberto Alesina and Dani Rodrik. Distributive Politicsand Economic Growth. The Quarterly Journal of Economics109, no. 2 (May 1994): 46590.

2 Jess Benhabib and Mark M. Spiegel. The Role of HumanCapital and Political Instability in Economic D evelop-ment.Journal of Monetary Economics24 (1994): 14373.

3 Franois Bourguignon. Growth, distribution and humanresources. En Route to Modern Growth, Essays in Honor ofCarlos Diaz-Alejandro(1994): 43-69.

4 Andrea Brandolini and Nicola Rossi. Income Distribu-tion and Growth in Industrial Countries. In IncomeDistribution and High-Quality Growth, edited by Vito Tanziand Ke-young Chu, 69105. MIT Press, 1998.

5 George R. G. Clarke. More Evidence on Income Distribu-tion and Growth. World Bank Policy Research Working

Paper WPS 1064 (December 1992).

6 Klaus Deininger and Lyn Squire. A New Data SetMeasuring I ncome Inequality.The World Bank EconomicReview 10, no. 3 (1996): 56591.

7 Philip Keefer and Stephen Knack. Polarization, PropertyRights, and the Links between Inequality and Growth.World Bank Mimeo (October 1994).

8 Roberto Perotti. Fiscal policy, income distribution,and growth. Columbia University Working Paper 636(November 1992).

9 Roberto Perotti. Income distribution and investment.European Economic Review38, no. 3 (1994): 827-835.

10 Roberto Perotti. Growth, Income Distribution, and De-mocracy: What the Data Say.Journal of Economic Growth1, no. 2 (June 1996): 14987.

11 Torsten Persson and Guido Tabellini. Growth, distribu-tion and politics. European Economic Review 36, no. 2(1992): 593-602.

12 Torsten Persson and Guido Tabellini. Is InequalityHarmful for Growth? Theory and Evidence.The AmericanEconomic Review84, no. 3 (June 1994): 600621.

13 Yiannis P. Venieris and Dipak K. Gupta. Income distribu-tion and sociopolitical instability as determinants ofsavings: a cross-sectional model. The Journal of PoliticalEconomy(1986): 873-883.

14 Abhijit V. Banerjee and Esther Duflo. Inequality andGrowth: What Can the Data Say?Journal of EconomicGrowth 8, no. 3 (2003): 26799.

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15 Robert J. Barro. Inequality and Growth in a Panel ofCountries.Journal of Economic Growth5, no. 1 (2000):532.

16 Amparo Castello and Rafael Domenech. Human CapitalInequality and Economic Growth: Some New Evidence.The Economic Journal112 (March 2002): C187C200.

17 Klaus Deininger and Lyn Squire. New ways of looking atold issues: inequality and g rowth.Journal of developmenteconomics57, no. 2 (1998): 259-287.

18 Kristin J. Forbes. A Reassessment of the Relationshipbetween Inequality and Growth.American EconomicReview, 2000, 86987.

19 Stephen Knowles. Inequality and economic growth:the empirical relationship reconsidered in the light ofcomparable data. The Journal of Development Studies41,no. 1 (2005): 135-159.

20 Sarah Voitchovsky. Does the Profile of Income Inequal-ity Matter for Economic Growth?Journal of EconomicGrowth 10, no. 3 (2005): 27396.

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