Top-end inequality and growth: empirical exploration of nonlinearities and the time dimension

Elina Tuominen ()
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Elina Tuominen: Tampere University & Finnish Centre of Excellence in Tax Systems Research

The Journal of Economic Inequality, 2024, vol. 22, issue 2, No 4, 331 pages

Abstract: Abstract Using the series of the top 1% income shares in 137 countries, I examine the relationship between top-end inequality and subsequent economic growth from the 1920s to the 2010s. These data enable a versatile exploration of various time horizons. To address concerns regarding chosen functional forms, I employ penalized spline methods to accommodate potential nonlinearities. Empirical findings suggest that the relationship between top-end inequality and subsequent growth is complex, contingent upon both the investigated time horizon and the level of economic development. I find some evidence for a positive link at medium levels of economic development, with this positive link being more pronounced in short- to medium-term associations. I also find that the positive medium-run association weakens as economic development advances. In advanced economies, a negative (or nonpositive) medium- to long-term relationship emerges between the top 1% income share and growth in many settings. Furthermore, I conclude that longer-run associations need to be investigated further.

Keywords: Inequality; Top incomes; Growth; Nonlinearity; Longitudinal data (search for similar items in EconPapers)
JEL-codes: O11 O15 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10888-023-09604-7

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