UK Economic Growth and Inequality from 1870

Vo Phuong Mai Le, David Meenagh, A. Patrick Minford and Hankui Wang

No E2025/7, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: This paper examines the long-term relationship between economic growth and inequality in the UK using an endogenous growth model with heterogeneous agents. The model links entrepreneurial incentives to individual wealth, showing how wealth distribution endogenously influences growth. Estimation via Indirect Inference confirms its ability to replicate UK data from 1870 to 2016. The findings reveal a trade-off between wealth equalization and growth, with welfare analysis showing that higher income transfers benefit lower-income groups but reduce growth, while lower transfers support growth with modest welfare costs.

Keywords: Growth; inequality; heterogeneous-agent; entrepreneurship (search for similar items in EconPapers)
JEL-codes: E2 E6 H2 O4 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2025-03
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