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Inequality and Growth: From Micro Theory to Macro Empirics

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  • N. GOBBIN
  • G. RAYP
  • D. VAN DE GAER

Abstract

To establish the nature of the link between income distribution and economic growth by means of a standard growth regression, one needs to collapse an entire income distribution into a scalar measure of inequality. Due to data shortages macro-economic research has typically been forced to use the gini coefficient for this purpose. Using a simulation set up we check how well different measures of inequality or poverty succeed in detecting the correct relationship. We find that the gini coefficient might not be the worst of choices, but the comparison of the explanatory power of different inequality measures can help to identify the theoretical mechanism through which inequality affects growth.

Suggested Citation

  • N. Gobbin & G. Rayp & D. Van De Gaer, 2004. "Inequality and Growth: From Micro Theory to Macro Empirics," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/258, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:04/258
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    References listed on IDEAS

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    1. repec:aia:aiaswp:wp14 is not listed on IDEAS
    2. N. Gobbin & G. Rayp, 2004. "Inequality and Growth: Does Time Change Anything?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/230, Ghent University, Faculty of Economics and Business Administration.
    3. Assar Lindbeck, 1993. "The Welfare State," Books, Edward Elgar Publishing, number 1003.
    4. Atkinson, A.B. & Brandolini, A., 2000. "Promise and Pitfalls in the Use of 'Secondary' Data -Sets: Income Inequality in OECD Countries," Papers 379, Banca Italia - Servizio di Studi.
    5. Pedro H. Albuquerque, 2004. "Inequality-Driven Growth: Unveiling Aggregation Effects in Growth Equations," Econometric Society 2004 Latin American Meetings 7, Econometric Society.
    6. Robert J. Barro, 1999. "Inequality, Growth, and Investment," NBER Working Papers 7038, National Bureau of Economic Research, Inc.
    7. Viaene, J.-M. & Zilcha, I., 2001. "Human Capital Formation, Income Inequality and Growth," Papers 2001-13, Tel Aviv.
    8. Assar Lindbeck, 1993. "The Selected Essays of Assar Lindbeck," Books, Edward Elgar Publishing, volume 0, number 287.
    9. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931.
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    Citations

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    Cited by:

    1. Michal Brzezinski, 2013. "Income Polarization and Economic Growth," LIS Working papers 587, LIS Cross-National Data Center in Luxembourg.
    2. John Nkwoma Inekwe & Yi Jin & Maria Rebecca Valenzuela, 2020. "Income inequality, financial flows and political institution: sub-Saharan African financial network," Empirical Economics, Springer, vol. 58(6), pages 2635-2665, June.
    3. Jürgen Faik, 2012. "Impacts of an Ageing Society on Macroeconomics and Income Inequality: The Case of Germany since the 1980s," SOEPpapers on Multidisciplinary Panel Data Research 518, DIW Berlin, The German Socio-Economic Panel (SOEP).
    4. Michel Dumont & Nikolina Stojanovska & Ludo Cuyvers, 2011. "World inequality, globalisation, technology and labour market institutions," International Journal of Manpower, Emerald Group Publishing Limited, vol. 32(3), pages 257-272, June.
    5. Bruce E. Kaufman, 2010. "Institutional Economics and the Minimum Wage: Broadening the Theoretical and Policy Debate," ILR Review, Cornell University, ILR School, vol. 63(3), pages 427-453, April.
    6. F Marchionne & S Parekh, 2015. "Growth, Debt, and Inequality," Economic Issues Journal Articles, Economic Issues, vol. 20(2), pages 67-94, September.

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    More about this item

    Keywords

    income inequality; economic growth; inequality measures; poverty measures; simulation;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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