Income distribution and growth in France: a long-run time-frequency analysis

The relationship between income distribution and real GDP growth is a longstanding and unsolved puzzle in economics, which seems to depend crucially on the time horizon at which the relationship is investigated. We explicitly address the time scale issue by applying suitable time-frequency techniques to a century of French data (1915-2016). Our results show that the association between income distribution and growth is particularly significant in the medium and long term, while it is weaker and quite unstable in the short run. In the very long term, when the association is notably still wide-ranging and robust, economic growth appears to benefit from a more equal income distribution, as captured by a higher income share held by the middle class. Notably, the lead-lag relationship cannot be taken for granted, since the leading variable tends to change over time and across frequencies. Specifically, the analysis reveals that while economic growth led income distribution up to the 1970s, especially at lower scales, the lead-lag relationship has reversed at almost all frequencies in recent decades. Finally, we find that throughout the past century, the bottom half of the income distribution in France has benefited the least from the growth process as a whole.