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Inequality and Growth: The Neglected Time Dimension


Halter, Daniel; Oechslin, Manuel; Zweimüller, Josef (2011). Inequality and Growth: The Neglected Time Dimension. Working paper series / Institute for Empirical Research in Economics No. 507, University of Zurich.

Abstract

The empirical literature on the relationship between inequality and growth offers a contradictory assessment: Estimators based on time-series variation indicate a positive link while estimators (also) exploiting the cross-sectional variation suggest a negative relationship. The present paper (i) confirms this conflicting pattern in an expanded dataset; (ii) proposes a simple theoretical framework to highlight the biases associated with the different techniques. We argue that mechanisms generating a positive inequality-growth relationship work mainly in the short-run and are reflected in difference-based estimators. In contrast, mechanisms generating a negative relationship work over the longer term and are reflected in level-based estimators.

Abstract

The empirical literature on the relationship between inequality and growth offers a contradictory assessment: Estimators based on time-series variation indicate a positive link while estimators (also) exploiting the cross-sectional variation suggest a negative relationship. The present paper (i) confirms this conflicting pattern in an expanded dataset; (ii) proposes a simple theoretical framework to highlight the biases associated with the different techniques. We argue that mechanisms generating a positive inequality-growth relationship work mainly in the short-run and are reflected in difference-based estimators. In contrast, mechanisms generating a negative relationship work over the longer term and are reflected in level-based estimators.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
JEL Classification:O11, O15, O43, C23
Uncontrolled Keywords:Inequality, growth, short-run effects, long-run effects
Language:English
Date:November 2011
Deposited On:27 Jun 2012 14:42
Last Modified:07 Dec 2017 14:30
Series Name:Working paper series / Institute for Empirical Research in Economics
Number of Pages:28
ISSN:1424-0459
Additional Information:Revised version
Official URL:http://www.iew.unizh.ch/wp/iewwp507.pdf
Related URLs:http://www.econ.uzh.ch/wp.html

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