How much Inequality is Harmful for Growth? The Growth Maximizing Rate of Inequality in the Context of the Mexican Economy

Jorge Charles-Coll and Elisabeth L. Mayer Granados
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Jorge Charles-Coll: Universidad Autonoma de Tamaulipas, Victoria, Mexico
Elisabeth L. Mayer Granados: Universidad Autonoma de Tamaulipas, Victoria, Mexico
Authors registered in the RePEc Author Service: Jorge Alberto Charles Coll ()

Economia Internazionale / International Economics, 2017, vol. 70, issue 3, 301-318

Abstract: This paper contributes to the debate over the relationship between inequality and growth by testing in a country specific context, the proposition in Charles-Coll (2015) of a nonlinear relationship between income inequality and economic growth. The model is tested for the Mexican economy using a highly disaggregated dataset at the municipal level for the period of 2000-2005. An inverted “U” shaped relationship is demonstrated, showing that low levels of inequality exert a positive correlation with economic growth while high levels have a negative one. Additionally, the findings demonstrate the existence of a growth maximizing rate of inequality (GMRI) that optimizes growth rates and releases the economy from the distortions generated by elevated inequality or taxation. Quanta disuguaglianza danneggia la crescita? Il tasso di disuguaglianza che massimizza la crescita nell’economia messicana Questo studio contribuisce al dibattito sulla relazione tra disuguaglianza e crescita effettuando un test dell’ipotesi di Charles-Coll (2015) di una relazione nonlineare tra questi due fattori. Il modello è testato sull’economia messicana con l’utilizzo di un dataset fortemente disaggregato a livello locale relativo al periodo 2000-2005. Viene dimostrata l’esistenza di una relazione a “U”, con una relazione positiva tra disuguaglianza e crescita economica a bassi livelli di disuguaglianza ed una relazione negativa ad alti livelli di disuguaglianza. Inoltre i risultati dimostrano l’esistenza di un tasso di disuguaglianza che massimizza la crescita economica.

Keywords: Income Inequality; Economic Growth; Mexico (search for similar items in EconPapers)
JEL-codes: O11 O15 O40 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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