The optimal rate of inequality: A framework for the relationship between income inequality and economic growth

Jorge A. Charles-Coll
Authors registered in the RePEc Author Service: Jorge Alberto Charles Coll ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper contributes to the debate over the relationship between inequality and growth by proposing that the disparities in empirical studies derive from the fact that they have not accounted for the level of inequality as a factor that can affect the sign of the relationship. 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, and more importantly, it is demonstrated the existence of an optimal rate of inequality (ORI) that maximizes growth rates and releases the economy from any distortion generated by elevated inequality or taxation. Empirical evidence from a broad panel of countries as well as a bibliometric analysis is presented to validate these propositions.

Keywords: Inequality; Growth; Redistribution; Optimal Rate of Inequality (search for similar items in EconPapers)
JEL-codes: D31 D33 E25 O15 (search for similar items in EconPapers)
Date: 2010-08-27
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Citations: View citations in EconPapers (8)

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