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Income inequality, financial development, and macroeconomic fluctuations

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  • Murat F. Iyigun
  • Ann L. Owen

Abstract

We examine the relationship between income inequality and variability in aggregate consumption growth. In high-income countries, greater income inequality appears to be associated with more volatility in consumption growth, whereas in lower-income countries, higher levels of income inequality tend to be associated with less volatility. We present evidence that variability in real GDP growth is also related to income inequality in the same way. Our results suggest that the level of financial development may help to explain why the distribution of income affects the short-run variability of consumption and output differently in high-income countries than in low-income countries. Copyright 2004 Royal Economic Society.

Suggested Citation

  • Murat F. Iyigun & Ann L. Owen, 2004. "Income inequality, financial development, and macroeconomic fluctuations," Economic Journal, Royal Economic Society, vol. 114(495), pages 352-376, April.
    • Handle: RePEc:ecj:econjl:v:114:y:2004:i:495:p:352-376
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    References listed on IDEAS

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    Cited by:

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    2. Huang, Ho-Chuan (River) & Fang, WenShwo & Miller, Stephen M. & Yeh, Chih-Chuan, 2015. "The effect of growth volatility on income inequality," Economic Modelling, Elsevier, vol. 45(C), pages 212-222.
    3. Asif Sajid & Amjad Ali, 2018. "Inclusive Growth and Macroeconomic Situations in South Asia: An Empirical Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 7(3), pages 97-109, September.
    4. MacDonald, Ronald & Majeed, Muhammad Tariq, 2010. "Distributional and Poverty Consequences of Globalization: A Dynamic Comparative Analysis for Developing Countries," SIRE Discussion Papers 2010-62, Scottish Institute for Research in Economics (SIRE).
    5. Epstein, Brendan & Finkelstein Shapiro, Alan, 2019. "Financial development, unemployment volatility, and sectoral dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 99(C), pages 82-102.
    6. Amparo Castelló-Climent, 2010. "Channels through Which Human Capital Inequality Influences Economic Growth," Journal of Human Capital, University of Chicago Press, vol. 4(4), pages 394-450.
    7. Soares, Rodrigo R. & Assunção, Juliano J. & Goulart, Tomás F., 2012. "A note on slavery and the roots of inequality," Journal of Comparative Economics, Elsevier, vol. 40(4), pages 565-580.
    8. Castelló-Climent, Amparo & Hidalgo-Cabrillana, Ana, 2012. "The role of educational quality and quantity in the process of economic development," Economics of Education Review, Elsevier, vol. 31(4), pages 391-409.
    9. Irena Antošová & Naďa Hazuchová & Jana Stávková, 2021. "Income situation of agricultural households of EU countries," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 67(4), pages 121-128.
    10. Muhammad Shahbaz & Nanthakumar Loganathan & Aviral Tiwari & Reza Sherafatian-Jahromi, 2015. "Financial Development and Income Inequality: Is There Any Financial Kuznets Curve in Iran?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 124(2), pages 357-382, November.
    11. Ana Hidalgo & Amparo Castelló-Climent, 2010. "Quality and Quantity of Education in the Process of Development," 2010 Meeting Papers 238, Society for Economic Dynamics.
    12. Makhlouf, Yousef & Kellard, Neil M. & Vinogradov, Dmitri, 2017. "Child mortality, commodity price volatility and the resource curse," Social Science & Medicine, Elsevier, vol. 178(C), pages 144-156.
    13. Klomp, Jeroen & de Haan, Jakob, 2009. "Political institutions and economic volatility," European Journal of Political Economy, Elsevier, vol. 25(3), pages 311-326, September.

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