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

When average incomes rise, the average incomes of the poorest fifth of society rise proportionately. This holds across regions, periods, income levels, and growth rates. But relatively little is known about the broad forces that account for the variations across countries and across time in the share of income accruing to the poorest fifth. When average incomes rise, the average incomes of the poorest fifth of society rise proportionately. This is a consequence of the strong empirical regularity that the share of income accruing to the bottom quintile does not vary systematically with average income. Dollar and Kraay document this empirical regularity in a sample of 92 countries spanning the past four decades and show that it holds across regions, periods, income levels, and growth rates. Dollar and Kraay next ask whether the factors that explain cross-country differences in the growth rates of average incomes have differential effects on the poorest fifth of society. They find that several determinants of growth - such as good rule of law, openness to international trade, and developed financial markets - have little systematic effect on the share of income that accrues to the bottom quintile. Consequently, these factors benefit the poorest fifth of society as much as everyone else. There is some weak evidence that stabilization from high inflation and reductions in the overall size of government not only increase growth but also increase the income share of the poorest fifth in society. Finally, Dollar and Kraay examine several factors commonly thought to disproportionately benefit the poorest in society, but find little evidence of their effects. The absence of robust findings emphasizes that relatively little is known about the broad forces that account for the cross-country and intertemporal variation in the share of income accruing to the poorest fifth of society. This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to study growth and poverty reduction. The authors may be contacted at ddollar@worldbank.org or akraay@worldbank.org.

Growth is Good for the Poor

�Greenhouse gas (GHG) emissions are exter nalities and represent the biggest market failure the world has seen. We all produce emissions, people around the world are already suffering from past emissions, and current emissions will have potentially catastrophic impacts in the future. Thus, these emissions are not ordinary, localized externalities. Risk on a global scale is at the core of the issue. These basic features of the problem must shape the economic analy sis we bring to bear; failure to do this will, and has, produced approaches to policy that are pro foundly misleading and indeed dangerous. The purpose of this lecture is to set out what I think is an appropriate way to examine the economics of climate change, given the unique scientific and economic challenges posed, and to suggest implications for emissions targets, policy instruments, and global action. The sub ject is complex and very wide-ranging. It is a subject of vital importance but one in which the economics is fairly young. A central challenge is to provide the economic tools necessary as

/pdf/the-economics-of-climate-change-4wdlqpcyci.pdf

The Economics of Climate Change

Economics and Information Theory

This paper challenges the current belief that income inequality has a negative relationship with economic growth. It uses an improved data set on income inequality which not only reduces measurement error, but also allows estimation via a panel technique. Results suggest that in the short and medium term, an increase in a country's level of income inequality has a significant positive relationship with subsequent economic growth.

/pdf/a-reassessment-of-the-relationship-between-inequality-and-3inxal2ghv.pdf

A Reassessment of the Relationship between Inequality and Growth

This paper examines the role of secondary data-sets in empirical economic research, taking the field of income distribution as a case study. We illustrate problems faced by users of "secondary" statistics, showing how both cross-country comparisons and time-series analysis can depend sensitively on the choice of data. After describing the genealogy of secondary data-sets on income inequality, we consider the main methodological issues and discuss their implications for comparisons of income inequality across OECD countries and over time. The lessons to be drawn for the construction and use of secondary data-sets are summarized at the end of the paper.

/pdf/promise-and-pitfalls-in-the-use-of-secondary-data-sets-3fud7hl6ih.pdf

Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study

Consideration of world inequality should cause reexamination of the key concepts underlying the welfare approach to measuring income inequality and its relation to measuring poverty. This reexamination leads to exploration of a new measure that allows poverty and inequality to be considered in the same framework, incorporates different approaches to measuring inequality, and allows varied expressions of the cost of inequality. Applied to the world distribution of income for 1820–1992, the new measure provides different perspectives on the evolution of global inequality.

/pdf/on-analyzing-the-world-distribution-of-income-3z4i2wzxah.pdf

On Analyzing the World Distribution of Income

Poverty is generally defined as income or expenditure insufficiency, but the economic condition of a household also depends on its real and financial asset holdings. This paper investigates measures of poverty that rely on indicators of household net worth. We review and assess two main approaches followed in the literature: income-net worth measures and asset-poverty. We provide fresh cross-national evidence based on data from the Luxembourg Wealth Study.

/pdf/asset-based-measurement-of-poverty-4dmu6s196z.pdf

Asset-Based Measurement of Poverty

The ‘Great Recession’ was the worst macroeconomic downturn since the 1930s in most OECD countries. In many economies, subsequent recovery has been sluggish, and has sometimes turned into a new recession. The paper in vestigates the effects of the Great Recession on the distribution of household incomes. It shows that the changes between 2007 and 2009 in household incomes in total and on avera ge, in income inequality, and in poverty rates, were modest in most of the countries studied , in spite of the depth of the recession in most countries. This outcome is remarkably differen t from the far more dramatic experience of the Great Depression, although not so different from some recent recessions such as the Nordic crisis of the early 1990s. During the GR, th e household sector was protected from the impact of the downturn by both automatic stabiliser s and additional support of governments through the tax and benefit system. The post-2009 d istributional impacts of the GR are likely to have been considerably larger however, with grea ter differences across countries emerging.

/pdf/the-great-recession-and-the-distribution-of-household-income-3fzwmg274x.pdf

The Great Recession and the Distribution of Household Income

The labour market status of many non-working persons is at the boundary between unemployment and inactivity. Like the unemployed, they seek and are available for work; unlike them, their last search action was not recent enough to meet the ILO definition of unemployment. In this paper we examine by non-parametric tests how the transition probabilities of these out-of-the-labour-force job seekers differ from those of the unemployed as well as the other non-participants. First, using data from the European Community Household Panel, we show that in most EU countries these job seekers constitute a distinct labour market state. Second, we rely on information only available in the Italian Labour Force Survey to derive a measure of search intensity which we use to break down the out-of-the-labour-force job seekers. On the basis of their transition probabilities, the most active are indistinguishable from the unemployed.

Andrea Brandolini

Papers

Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries As a Case Study

On Analyzing the World Distribution of Income

Asset-Based Measurement of Poverty

The Great Recession and the Distribution of Household Income

Does the ilo definition capture all unemployment