Economics at your fingertips  

Income inequality and economic growth: A re‐examination of theory and evidence

Mehmet Balcilar, Rangan Gupta, Wei Ma and Philton Makena

Review of Development Economics, 2021, vol. 25, issue 2, 737-757

Abstract: We re‐examine the theoretical and empirical relationship between income inequality and long‐run economic growth in an endogenous growth model with a flat tax on income, distributive conflicts among agents, and median voter dynamics. We show that when government spends tax revenue on the provision of public goods in the form of both production and consumption services, the theoretical relationship between inequality and economic growth is neither strictly positive nor strictly negative, but ambiguous. An empirical evaluation of the theoretical findings is carried out by applying a semi‐parametric model on a sample of 63 countries for the period 1991–2017. Results show that the relationship between income inequality and growth takes the form of an inverted U‐shape in that income inequality initially has a positive impact on growth up to an average Gini coefficient threshold of 35.92, beyond which it negatively impacts on growth.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)

Related works:
Working Paper: Income Inequality and Economic Growth: A Re-Examination of Theory and Evidence (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1363-6669

Access Statistics for this article

Review of Development Economics is currently edited by E. Kwan Choi

More articles in Review of Development Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

Page updated 2024-04-05
Handle: RePEc:bla:rdevec:v:25:y:2021:i:2:p:737-757