Discussion paper

DP8033 Inequality and Growth: The Neglected Time Dimension

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.


Oechslin, M and D Halter (2010), ‘DP8033 Inequality and Growth: The Neglected Time Dimension‘, CEPR Discussion Paper No. 8033. CEPR Press, Paris & London. https://cepr.org/publications/dp8033