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Inequality and growth: the neglected time dimension


Halter, Daniel; Oechslin, Manuel; Zweimüller, Josef (2014). Inequality and growth: the neglected time dimension. Journal of Economic Growth, 19(1):81-104.

Abstract

Inequality affects economic performance through many mechanisms, both beneficial and harmful. Moreover, some of these mechanisms tend to set in fast while others are rather slow. The present paper (i) introduces a simple theoretical model to study how changes in inequality affect economic growth over different time horizons; (ii) empirically investigates the inequality–growth relationship, thereby relying on specifications derived from the theory. Our empirical findings are in line with the theoretical predictions: Higher inequality helps economic performance in the short term but reduces the growth rate of GDP per capita farther in the future. The long-run (or total) effect of higher inequality tends to be negative.

Abstract

Inequality affects economic performance through many mechanisms, both beneficial and harmful. Moreover, some of these mechanisms tend to set in fast while others are rather slow. The present paper (i) introduces a simple theoretical model to study how changes in inequality affect economic growth over different time horizons; (ii) empirically investigates the inequality–growth relationship, thereby relying on specifications derived from the theory. Our empirical findings are in line with the theoretical predictions: Higher inequality helps economic performance in the short term but reduces the growth rate of GDP per capita farther in the future. The long-run (or total) effect of higher inequality tends to be negative.

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19 citations in Web of Science®
18 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Inequality, economic growth, short-term effects, long-run effects
Language:English
Date:March 2014
Deposited On:16 Jan 2015 14:15
Last Modified:08 Dec 2017 10:21
Publisher:Springer
ISSN:1381-4338
Additional Information:The original publication is available at www.springerlink.com
Publisher DOI:https://doi.org/10.1007/s10887-013-9099-8
Related URLs:http://dx.doi.org/10.5167/uzh-62217

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