A Reassessment of the Relation Between Economic Growth and Maldistribution of Income
MetadataShow full item record
This article aims to evaluate the effect of the maldistribution of income on economic growth. From the empirical point of view, the literature on the matter is considerable. However, previous studies have employed the Gini index as a measure of inequality which tends to underestimate income disparities across countries. Because the complexity of inequality has changed over time and due to the Gini index is incapable of capturing the changing nature of distribution, we employ the Palma Ratio instead of the Gini index. The main advantage of employing the Palma Ratio is that it captures the dynamics of inequality and allows us to analyze the roots of this maldistribution. The relationship is estimated employing the methodology of Arellano-Bond for dynamic panels, and the results suggest that maldistribution of income generates a sluggish economic growth. In fact, our results suggest that inequality could be associated with a substantial reduction in growth.
C23 - Panel Data Models • Spatio-temporal ModelsD63 - Equity, Justice, Inequality, and Other Normative Criteria and MeasurementE25 - Aggregate Factor Income DistributionO11 - Macroeconomic Analyses of Economic DevelopmentO47 - Empirical Studies of Economic Growth • Aggregate Productivity • Cross-Country Output Convergence