Inequality and Growth: The Neglected Time Dimension

Manuel Oechslin () and David Halter

No 8033, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The empirical literature on the relationship between inequality and growth offers a contradictory assessment: Estimators based on time-series (differences-based) variation indicate a strong positive link while estimators (also) exploiting the cross-sectional (levelbased) variation suggest a negative relationship. Using an expanded dataset, the present paper confirms this conflicting pattern ? and reconciles it on the basis of a simple model. We argue that the differences-based methods are prone to reflect the mostly positive shortor medium-run implications of inequality while the level-based estimators also incorporate more negative long-term consequences. Thus, the latter estimates come close to reflecting the adverse overall impact of inequality in the long run.

Keywords: Growth; Inequality; Long-run effects; Medium-run effects (search for similar items in EconPapers)
JEL-codes: C23 O11 O15 O43 (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-fdg
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Citations: View citations in EconPapers (4)

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