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Top-end inequality and growth: empirical exploration of nonlinearities and the time dimension

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  • Elina Tuominen

    (Tampere University & Finnish Centre of Excellence in Tax Systems Research)

Abstract

Using the series of the top 1% income shares in 137 countries, I examine the relationship between top-end inequality and subsequent economic growth from the 1920s to the 2010s. These data enable a versatile exploration of various time horizons. To address concerns regarding chosen functional forms, I employ penalized spline methods to accommodate potential nonlinearities. Empirical findings suggest that the relationship between top-end inequality and subsequent growth is complex, contingent upon both the investigated time horizon and the level of economic development. I find some evidence for a positive link at medium levels of economic development, with this positive link being more pronounced in short- to medium-term associations. I also find that the positive medium-run association weakens as economic development advances. In advanced economies, a negative (or nonpositive) medium- to long-term relationship emerges between the top 1% income share and growth in many settings. Furthermore, I conclude that longer-run associations need to be investigated further.

Suggested Citation

  • Elina Tuominen, 2024. "Top-end inequality and growth: empirical exploration of nonlinearities and the time dimension," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 22(2), pages 311-331, June.
    • Handle: RePEc:spr:joecin:v:22:y:2024:i:2:d:10.1007_s10888-023-09604-7
    DOI: 10.1007/s10888-023-09604-7
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    More about this item

    Keywords

    Inequality; Top incomes; Growth; Nonlinearity; Longitudinal data;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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