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Title: Inequality and Growth: The Neglected Time Dimension

Author(s): David Halter and Manuel Oechslin

Publication Date: September 2010

Keyword(s): Growth, Inequality, Long-run Effects and Medium-run Effects

Programme Area(s): International Macroeconomics and Labour Economics

Abstract: The empirical literature on the relationship between inequality and growth offers a contradictory assessment: Estimators based on time-series (differences-based) variation indicate a strong positive link while estimators (also) exploiting the cross-sectional (levelbased) variation suggest a negative relationship. Using an expanded dataset, the present paper confirms this conflicting pattern ? and reconciles it on the basis of a simple model. We argue that the differences-based methods are prone to reflect the mostly positive shortor medium-run implications of inequality while the level-based estimators also incorporate more negative long-term consequences. Thus, the latter estimates come close to reflecting the adverse overall impact of inequality in the long run.

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Bibliographic Reference

Halter, D and Oechslin, M. 2010. 'Inequality and Growth: The Neglected Time Dimension'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=8033