Working Paper: CEPR ID: DP8033
Authors: Daniel Halter; Manuel Oechslin; Josef Zweimüller
Abstract: The empirical literature on the relationship between inequality and growth offers a contradictory assessment: Estimators based on time-series (differences-based) variation indicate a strong positive link while estimators (also) exploiting the cross-sectional (levelbased)variation suggest a negative relationship. Using an expanded dataset, the present paper confirms this conflicting pattern ? and reconciles it on the basis of a simple model. We argue that the differences-based methods are prone to reflect the mostly positive shortor medium-run implications of inequality while the level-based estimators also incorporate more negative long-term consequences. Thus, the latter estimates come close to reflecting the adverse overall impact of inequality in the long run.
Keywords: growth; inequality; long-run effects; medium-run effects
JEL Codes: C23; O11; O15; O43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inequality (D63) | economic growth (O49) |
| first-difference GMM (C51) | inequality (D63) |
| system GMM (E16) | inequality (D63) |
| short-run effects (E44) | long-run effects (E65) |