Effects of Income Inequality on Aggregate Output

This paper estimates the effect of income inequality on real gross domestic product per capita using a panel of 104 countries during the period 1970–2010. The empirical analysis addresses endogeneity issues by using instrumental variables estimatio...

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Bibliographic Details
Main Authors:	Brueckner, Markus, Lederman, Daniel
Format:	Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2015
Subjects:	INDUSTRIALIZED COUNTRIES INCOME SHARE GOVERNMENT EXPENDITURES ECONOMIC GROWTH CAPITAL ACCUMULATION INCOME INDIVIDUAL COUNTRIES INCOME QUINTILES ECONOMETRIC MODEL REAL GDP GDP PER CAPITA ECONOMIC REVIEW DEVELOPING COUNTRIES EMPIRICAL LEVEL POLICY CIRCLES FISCAL POLICY POLICY DISCUSSIONS VARIABLES EMPIRICAL STUDIES LAGGED VALUES MARGINAL EFFECT WEALTH MEASURES EMPIRICAL LITERATURE INSTRUMENTS INCOME INEQUALITY DATA EMPIRICAL ANALYSIS DEVELOPMENT MARKET IMPERFECTIONS STANDARD DEVIATION EMPIRICAL RESULTS DEVELOPMENT ECONOMICS EDUCATIONAL ATTAINMENT FOREIGN AID ECONOMICS OF EDUCATION DESCRIPTIVE STATISTICS INCOME INEQUALITY DATA QUALITY SIGNIFICANCE LEVEL SIGNIFICANT NEGATIVE ECONOMETRICS PER CAPITA GROWTH GROSS DOMESTIC PRODUCT PER CAPITA NEGATIVE COEFFICIENT INDICATORS LAND OWNERSHIP PRODUCT RELATIVE PRICES GROSS DOMESTIC PRODUCT TAXES CONSUMPTION HUMAN CAPITAL CREDIT MARKET IMPERFECTIONS EXPLANATORY VARIABLE COUNTRY LEVEL CAPITAL ECONOMIC STUDIES ESTIMATED COEFFICIENT VALUE DEPENDENT VARIABLE LAND INEQUALITY CREDIT MACROECONOMICS POOR COUNTRIES NATIONAL INCOME DYNAMIC PANEL INEQUALITY DATA NEGATIVE EFFECT INCOME DISTRIBUTION INCOMES ESTIMATED COEFFICIENTS AGGREGATE OUTPUT ERROR TERM SECONDARY SCHOOLING ECONOMIC THEORY ECONOMICS EMPIRICAL RESEARCH LAGGED DEPENDENT FIXED EFFECTS DATA SETS ECONOMIC DEVELOPMENT POSITIVE EFFECT TRADE RICH COUNTRIES GDP DATA SET THEORY CROSS-COUNTRY DIFFERENCES WAR INVESTMENT INCOME SHARES POVERTY GINI COEFFICIENT EMPIRICAL EVIDENCE DISTRIBUTION OF WEALTH POLICY RESEARCH RISING INEQUALITY POOR CAPITAL INVESTMENT DEVELOPMENT INDICATORS INTERNATIONAL COMPARISONS MIDDLE INCOME COUNTRIES INEQUALITY COEFFICIENT LONG RUN INCOME LEVEL CREDIT MARKET DEVELOPMENT POLICY INEQUALITY GROWTH
Online Access:	http://documents.worldbank.org/curated/en/2015/06/24679226/effects-income-inequality-aggregate-output http://hdl.handle.net/10986/22203

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Summary:	This paper estimates the effect of income inequality on real gross domestic product per capita using a panel of 104 countries during the period 1970–2010. The empirical analysis addresses endogeneity issues by using instrumental variables estimation and controlling for country and time fixed effects. The analysis finds that, on average, income inequality has a significant negative effect on transitional gross domestic product per capita growth and the long-run level of gross domestic product per capita. However, the impact varies by the level of economic development, so much so that in poor countries income inequality has a significant positive effect on gross domestic product per capita.

Effects of Income Inequality on Aggregate Output

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