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Income inequality, economic growth, and the effect of redistribution

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  • Gründler, Klaus
  • Scheuermeyer, Philipp
Abstract
Evidence from a current panel of harmonized worldwide data highlights a robust negative effect of income inequality on economic growth that we trace back to its transmission channels. Less equal societies tend to have less educated populations and higher fertility rates, but not necessarily lower investment shares. The first two effects are harmful for growth and reinforced by limited credit availability. Higher public spending on education attenuates the negative effects of inequality. In addition to the inequality-growth relationship, we examine the direct influence of effective redistribution. When net inequality is held constant, public redistribution negatively affects economic growth. Redistribution hampers investment and raises fertility rates. Combining the negative direct growth effect and the indirect positive effect operating through lower net inequality, the overall impact of redistribution is insignificant. Whereas this result stems mainly from advanced economies, redistribution is beneficial for growth in low and middle-income countries.

Suggested Citation

  • Gründler, Klaus & Scheuermeyer, Philipp, 2015. "Income inequality, economic growth, and the effect of redistribution," W.E.P. - Würzburg Economic Papers 95, University of Würzburg, Department of Economics.
    • Handle: RePEc:zbw:wuewep:95
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    References listed on IDEAS

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    3. Quoc Hoi Le & Hoai Nam Nguyen, 2019. "The Impact of Income Inequality on Economic Growth in Vietnam: An Empirical Analysis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(5), pages 617-629, May.
    4. Benjamin Korankye & Xuezhou Wen & Appiah Michael & Easmond Baah-Nketiah, 2020. "Analyzing Economic Growth and Its impact on Poverty Reduction in Africa," International Journal of Science and Business, IJSAB International, vol. 4(12), pages 93-105.

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    More about this item

    Keywords

    Economic Growth; Redistribution; Inequality; Panel Data;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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