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Inequality of Outcomes, Inequality of Opportunity, and Economic Growth

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  • Rafael Carranza

    (London School of Economics)

Abstract

Is the relationship between inequality of opportunity (IOp) and economic growth different from the relationship between inequality of outcomes and economic growth? I answer this question using System GMM regressions applied to data for 27 European countries covering the period 2005-2011. I find that a one-standard deviation increase in IOp results in a statistically significant decrease in growth rates, ranging from 0.65 to 1.03 percentage points. On the other hand, inequality of outcomes has no statistically significant effect. The estimates are robust to the choice of instrumental variables and estimation approach. Additional analysis reveals that human capital levels partly explain this relationship, and that the effect is stronger for inequality indexes that are sensitive to changes in the middle of the distribution, with bottom-sensitive indexes having almost no effect.

Suggested Citation

  • Rafael Carranza, 2020. "Inequality of Outcomes, Inequality of Opportunity, and Economic Growth," Working Papers 534, ECINEQ, Society for the Study of Economic Inequality.
    • Handle: RePEc:inq:inqwps:ecineq2020-534
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    References listed on IDEAS

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    Cited by:

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    2. Dai, Xinchen & Li, Jing, 2021. "Inequality of opportunity in China: Evidence from pseudo panel data," China Economic Review, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Economic growth; equality of opportunity; gross national income.;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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