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Inequality, Redistribution, and Growth in Developed Countries

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  • Andrea Festa

Abstract

This paper examines the effect of inequality and redistribution on growth in a panel of developed OECD countries with dynamic fixed effects (DFE) estimates. It is found out that redistribution is neutral to growth while disposable inequality is weakly positive for long-run aggregate output. Population growth is also a determinant of aggregate output. On the other hand, the analysis does not find evidence of a significant effect of both inequality and redistribution in the short-run as well as of top and bottom inequality. The analysis suggests that in economies that are more unequal a win-win process to increase equality and growth through redistributive taxes is likely to be effective, even if the overall effect is low and time demanding.

Suggested Citation

  • Andrea Festa, 2018. "Inequality, Redistribution, and Growth in Developed Countries," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot GmbH, Berlin, vol. 64(4), pages 297-323.
    • Handle: RePEc:dah:aeqaeq:v64_y2018_i4_q4_p297-323
    DOI: 10.3790/aeq.64.4.297
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