Income Distribution and Growth - The Role of Demand Composition Reconsidered (original) (raw)

Income inequality and economic growth: a simple theoretical synthesis

2005

We show that in an AK model of endogenous growth with CRRA specifications for both private and public consumption goods, income inequality exerts theoretically ambiguous effects on the optimal capital tax rate and the economy's growth rate. In a calibrated version of the model, we find that the parameter space can be clearly divided into regions that exhibit a positive or negative relationship between income inequality and economic growth. Hence, our analysis provides a theoretical synthesis on the relationship between inequality and growth and helps bring together some recent results in the literature.

Income Distribution and Economic Growth

ÖZET Bu makale gelir dağılımı ile ekonomik büyüme arasındaki karşılıklı ilişkiler üzerine mevcut literatürü kalkınma açısından analitik olarak incelemektedir. Ayrıca yakın geçmişteki gelir dağılımı trendlerini değerlendirmektedir. Çalışmamız büyümenin gelir dağılımı üzerinde her hangi bir yönde sistemli etkisi olmadığını göstermektedir. Buna karşın gelir dağılımı birçok mekanizma aracılığı ile ekonomik büyümeyi etkileyebilmektedir. Ampirik çalışma gelişmekte olan ülkeler için bu yönde anlamlı kanıtlar sunmaktadır.

On the relation between income distribution and economic growth

Most of the research on the relation between economic growth and income distribution has concentrated on the well-known Kuznets inverted-U hypothesis which claims that economic growth initially worsens income inequality and then it improves it. A few studies have argued that income inequality could also affect economic growth through its impact on saving and investment. In this paper, we use time-series data from 18 developing countries along with the bounds testing approach and investigate bi-directional causality between economic growth and a measure of income inequality. We find that while there is short-run bi-directional causality in most countries, the long-run causality is limited to less than half of the countries in the sample.

Growth and income inequality: a canonical model

Economic Theory, 2006

We develop an endogenous growth model with elastic labor supply, in which agents differ in their initial endowments of physical capital. In this framework, the growth rate and the distribution of income are jointly determined. The key equilibrating variable is the equilibrium labor supply. It determines the rate of return to capital, which in turn affects both the rate of capital accumulation and the distribution of income across agents. We then examine the impact of various structural shocks on growth and distribution. We find that faster growth is associated with a more unequal, contemporaneous distribution of income, consistent with recent empirical findings.

Endogenous growth and income distribution

Journal of Economics Zeitschrift f�r National�konomie, 1993

A theory of endogenous growth is based on an investment possibility function, relating the growth rate of output to the ratio of gross investment to output and the growth rate of employment as formulated originally by M.F. Scott. Consumers maximize an intertemporal utility function and producers maximize the value of the firm. The long-run rate of growth depends on consumer preferences, the exogenous growth of labor supply and the tax rate on output. The functional distribution of income is determined along with the investment ratio in the steady state. Labor market imperfections and real wage inertia induce transition processes, which are relevant for medium term growth.

Income inequality and economic growth: A re‐examination of theory and evidence

2018

We re-examine the theoretical and empirical relationship between income inequality and economic growth in an endogenous growth model with a at tax on income, distributive conflicts among agents and median voter dynamics. We show that when government spends tax revenue on the provision of public goods in the form of both production and consumption services, the theoretical relationship between inequality and economic growth is neither strictly positive nor strictly negative but that it is ambiguous. An empirical evaluation of the theoretical findings is done by applying a semi-parametric model on a sample of 55 low-income, lower-middle-income, upper-middle-income and high-income countries for the period 1980 to 2010. Results show that the relationship between income inequality and growth takes the form of an inverted-U shape in that income inequality initially has a positive impact on growth up to an average Gini coefficient threshold of 35.92 beyond which it negatively impacts on gr...

A Simple Model of Demand-Led Growth and Income Distribution

Anais Do Xxxii Encontro Nacional De Economia Proceedings of the 32th Brazilian Economics Meeting, 2004

This paper presents a one-sector demand-led model where capital and non-capital expenditures determine income growth and distribution. The basic idea is to build a simple dynamical accounting model for the growth rate of the capital stock, the ratio of non-capital expenditures to the capital stock, and the labor share of income. By inserting some stylized behavioral functions in the identities, the paper analyzes the implications of alternative theoretical closures of income determination (effective demand) and distribution (social conflict). On the demand side, two behavioral functions define the growth rates of capital and non-capital expenditures in terms of capacity utilization (measured by the output-capital ratio) and income distribution (measured by the labor share of income). On the distribution side, another two behavioral functions describe the growth rates of the real wage and labor productivity also in terms of capacity utilization and income distribution. The growth rates of multifactor productivity and employment follow residually from the accounting identities and, in this way, the demand-led model can encompass supply-driven models as a special case.