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Is income inequality good or bad for growth? Further empirical evidence using data for all Brazilian cities

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  • Marques, André M.

Abstract

This paper estimates the impacts of personal income inequality on subsequent growth in a massive spatial dataset for 5564 Brazilian cities observed in 1991, 2000, and 2010 using instrumental variables methods. Based on Brazilian cities’ data, the Wu-Hausman test rejects inequality exogeneity regarding growth. Instead of assuming exogenous inequality, we relax this assumption and let the data speak for themselves. Our methods identify causal effects between inequality and subsequent growth in conditional quantiles beyond the average. On average, the magnitude of the estimate implies that lowering personal income inequality by 1 Gini point would translate to an increase in a cumulative economic growth of 2.5 percentage points in the following ten years. Our findings call attention to the risk of following Litschig and Lombardi [J. Economic Growth, 2019, vol. 24, pp. 155–187] when studying the influence of inequality on growth, neglecting the endogeneity of the former to the latter.

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  • Marques, André M., 2022. "Is income inequality good or bad for growth? Further empirical evidence using data for all Brazilian cities," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 360-376.
    • Handle: RePEc:eee:streco:v:62:y:2022:i:c:p:360-376
    DOI: 10.1016/j.strueco.2022.05.012
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    More about this item

    Keywords

    Income inequality; Endogeneity; Economic growth; Quantile regression; Spatial autocorrelation;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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