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Inequality and Growth: A Heterogeneous Approach
Author:
Mr. Francesco Grigoli
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Evelio Paredes null

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Gabriel Di Bella null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 244
Language:
English
Publication Date:
16 Dec 2016
DOI:
https://doi.org/10.5089/9781475560527.001
ISBN:
9781475560527
ISSN:
1018-5941
Pages:
33
Keywords:
WP; null hypothesis; economic growth; net Gini index; Heterogeneity; Gini; income distribution; income inequality; income levels; growth; regions; growth rate; market Gini index; redistribution income; income level; income inequality growth; Gini measurement; Personal income; Income shocks; Middle East and Central Asia; Western Hemisphere
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The combination of stagnant growth and high levels of income inequality renewed the debate about whether a more even distribution of income can spur economic activity. This paper tests for cross-country convergence in income inequality and estimates its impact on economic growth with a heterogeneous panel structural vector autoregression model, which addresses some empirical challenges plaguing the literature. We find that income inequality is converging across countries, and that its impact on economic growth is heterogeneous. In particular, while the median response of real per capita GDP growth to shocks in income inequality is negative and significant, the dispersion around the estimates is large, with at least one fourth of the countries in the sample presenting a positive effect. The results suggest that the negative effect is mainly driven by the Middle East and Central Asia and the Western Hemisphere across regions, and emerging markets across income levels. Finally, we find evidence that improved institutional frameworks can reduce the negative effect of income inequality on growth.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund