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UK Economic Growth and Inequality from 1870

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Abstract

This paper examines the long-term relationship between economic growth and inequality in the UK using an endogenous growth model with heterogeneous agents. The model links entrepreneurial incentives to individual wealth, showing how wealth distribution endogenously influences growth. Estimation via Indirect Inference confirms its ability to replicate UK data from 1870 to 2016. The findings reveal a trade-off between wealth equalization and growth, with welfare analysis showing that higher income transfers benefit lower-income groups but reduce growth, while lower transfers support growth with modest welfare costs.

Suggested Citation

  • Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wang, Hankui, 2025. "UK Economic Growth and Inequality from 1870," Cardiff Economics Working Papers E2025/7, Cardiff University, Cardiff Business School, Economics Section.
    • Handle: RePEc:cdf:wpaper:2025/7
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    File URL: http://carbsecon.com/wp/E2025_7.pdf
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    More about this item

    Keywords

    Growth; inequality; heterogeneous-agent; entrepreneurship;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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