We investigate whether income inequality affects subsequent growth in a cross-country sample for 1965-90, using the models of Barro (1997), Bleaney and Nishiyama (2002) and Sachs and Warner (1997), with negative results. We then investigate the evolution of income inequality over the same period and its correlation with growth. The dominating feature is inequality convergence across countries. This convergence has been significantly faster amongst developed countries. Growth does not appear to influence the evolution of inequality over time. Outline

https://www.econstor.eu/bitstream/10419/81822/1/02-28.pdf

Economic growth and income inequality

This paper analyzes within the context of a multicommunity model the effects of several policies that affect the financing of public education. The key features of the model are: (I) individuals differ with respect to income, (ii) individuals choose in which community to reside, (iii) communities are characterized by a proportional tax on income and a quality of public education, and (iv) a community's tax rate is chosen by majority vote. We examine three types of policies: subsidies for residency of specific income groups in particular communities, ceilings or floors on community level educational spending, and income redistribution. In each case we examine the consequences of these policies for both welfare and the quality of education across communities. We identify several policies which make all individuals better off and increase the quality of education in all communities.

Income Distribution, Communities and the Quality of Public Education: A Policy Analysis

The New Zealand Treasury's Living Standards Framework (LSF) is a guide for thinking about good economic, environmental and social policy in an integrated way - policy that aims to enhance individual and communal wellbeing on a sustained basis. This paper presents an evolving stylised model (one possible model) for the LSF; it is work in progress. The model is constructed by weaving together threads from the wellbeing, sustainable development and endogenous economic growth literatures. Its primary aim is to capture all key attributes of the LSF in a unified model. In doing so, I wish to identify the domain of a public policy that aims to enhance collective intergenerational wellbeing, highlight the key complementarities and tradeoffs that we face as a society in this pursuit, and explore the policy options and levers available to the policy makers to relax these tradeoffs and exploit the complementarities to the same end.

https://www.econstor.eu/bitstream/10419/205690/1/twp2015-12.pdf

The New Zealand Treasury's Living Standards Framework - Exploring a Stylised Model

This paper reviews some recent research analyzing the growth-inequality relationship among heterogeneous agents. The primary source of heterogeneity is due to the initial endowments of physical capital, although extensions to include human capital and ability are also briefly considered. The models considered fall into three structural categories. The first is the one-sector endogenous growth model, which abstracts from distributional, as well as aggregate, dynamics. The second assumes neoclassical production and is characterized by transitional dynamics in both aggregates and inequality, enabling us to discuss both intratemporal and intertemporal tradeoffs. It introduces only one source of heterogeneity and cannot address issues pertaining to wealth and income mobility. To achieve that, it requires at least two sources of heterogeneity, such as capital and ability or skills, which are introduced in a third model. An important characteristic of the framework is that the effects of any changes on the measu...

The relationship between economic growth and inequality

A general two-sector model of endogenous growth with R&D and market structure

This paper analyzes the effects of technological change on growth and inequality in a two-sector economy. The key mechanism is the evolution of the differential rates of return to human relative to physical capital as they respond to the changing technology. Productivity enhancement in the human capital sector increases the growth rate permanently, but in the final output sector, it has only a temporary effect. The effects on inequality depend on (i) the underlying source of inequality and (ii) the time horizon over which the productivity increase occurs. The model can generate growth-inequality relationships consistent with the empirical evidence.

https://www.jstor.org/stable/10.1086/670270

Aditi Mitra

Papers

The Interaction between Human and Physical Capital Accumulation and the Growth-Inequality Trade-off