In this paper we try to test the political mechanism hypothesis used in the literature [(A-R) Alesina and Rodrick (1994) and (P-T) Persson and Tabellini (1994)] to explain the negative relationship between the level of income inequality and the growth rate of long run. Based on cross-section regressions our empirical results confirm the negative relationship between these two variables, but they also reject the theoretical arguments proposed in (A-R) and (P-T). Based on panel data analysis, the results suggest inertia dynamic in the relationship between inequality and growth. Inequality contemporaneous impact on growth rate is never significant, while its one period lagged value is significant and with a positive sign.
Income Inequality and Growth rate: an empirical analysis
PUDDU, STEFANO
2006-01-01
Abstract
In this paper we try to test the political mechanism hypothesis used in the literature [(A-R) Alesina and Rodrick (1994) and (P-T) Persson and Tabellini (1994)] to explain the negative relationship between the level of income inequality and the growth rate of long run. Based on cross-section regressions our empirical results confirm the negative relationship between these two variables, but they also reject the theoretical arguments proposed in (A-R) and (P-T). Based on panel data analysis, the results suggest inertia dynamic in the relationship between inequality and growth. Inequality contemporaneous impact on growth rate is never significant, while its one period lagged value is significant and with a positive sign.
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