Inequality and Economic Growth in the UK

Xiaoliang Yang (), A. Patrick Minford and David Meenagh
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Xiaoliang Yang: Zhongnan University of Economics and Law

Open Economies Review, 2021, vol. 32, issue 1, No 2, 37-69

Abstract: Abstract This paper analyses the effect of wealth inequality on UK economic growth in recent decades with a heterogeneous-agent growth model where agents can enhance individual productivity growth by undertaking entrepreneurship. The model assumes wealthy people are more able to afford the costs of entrepreneurship. Wealth concentration therefore stimulates entrepreneurship among the rich and so aggregate growth, whose fruits in turn are largely captured by the rich. This process creates a mechanism by which inequality and growth are correlated. The model is estimated and tested by Indirect Inference and is not rejected. Policy-makers face a trade-off between redistribution and growth.

Keywords: Inequality; Growth; Heterogeneous-agent; Entrepreneurship; Indirect Inference (search for similar items in EconPapers)
JEL-codes: E10 O30 O40 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11079-020-09598-z

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