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 describes the correlations between inequality and the growth rates in cross-country data. Using non-parametric methods, we show that the growth rate is an inverted U-shaped function of net changes in inequality: Changes in inequality (in any direction) are associated with reduced growth in the next period. The estimated relationship is robust to variations in control variables and estimation methods. This inverted U-curve is consistent with a simple political economy model, although, as we point out, efforts to interpret this model causally run into difficult identification problems. We show that this non-linearity is sufficient to explain why previous estimates of the relationship between the level of inequality and growth are so different from one another.

Inequality and Growth: What Can the Data Say?

Public Expenditures, Taxes, and the Distribution of Income; The United States, 1950, 1961, 1970

Economic Mobility and the Rise of the Latin American Middle Class

Income Inequality in the United States

This paper presents series of top income shares in Ecuador from 2004 to 2011 using individual income tax returns and external control totals for income and population from national accounts and census population projections respectively. First, our results show that the income distribution in this country has followed different growth paths between the bottom 90% of the population and the top income groups. The top groups have experienced a steep increase during this period. Second, income in Ecuador is highly concentrated at the very top of the distribution. In 2011, the share of total income accruing to the top 1% was between 12% and 16%. Third, top income shares have followed an inverted U-shape over this short period of time, suggesting a decline of income inequality. Fourth, contrary to evidence in industrialized countries, high-income individuals in Ecuador are mainly capital and business owners.

Top Income Shares in a Growing South American Economy: Ecuador 2004-2011

This paper assesses the redistributive impact of Ecuador’s personal income tax (PIT) over the 2007-2011 period. First, using individual income tax return data we compute different indicators of tax progressivity and redistributive impact (i.e. Kakwani, Suits and Reynolds-Smolensky indices) to estimate the extent to which income inequality is modified by the PIT. Second, we mobilize microsimulation techniques to assess the redistributive effect of the PIT while testing different definitions of taxable income. Third, based on the top incomes literature, we compute the effective income tax rates paid by top income groups. Finally, based on the elasticity of taxable income literature, we derive optimal income tax rates for top income groups. We find two main empirical results. First, although Ecuador’s PIT is highly progressive its redistributive capacity is very low because high-income individuals are more likely to reduce their taxable income through legal tax deductions than low-income individuals. Second, the effective tax rates paid by high-income individuals are relative low (e.g. 7% for the top 1% group) while optimal tax rates for top earners could be as high as 63%.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2703069_code2475422.pdf?abstractid=2703069&mirid=3

Personal Income Tax and Income Inequality: Ecuador 2007-2011

This paper uses data from individual income tax returns to explore the redistributive effect of personal income tax in Ecuador between 2007 and 2011. Following common practice in tax incidence analysis, we first compute indices of income tax progressivity and redistributive impact. We then mobilize microsimulation techniques to simulate the redistributive effect of personal income tax under different taxable income scenarios. Finally, we calculate the effective tax rates paid by top income groups and derive a range of optimal income taxes for the top 1% income group. We obtain two main empirical results. First, although Ecuador’s personal income tax is highly progressive, its redistributive capacity is low: our findings show that high-income individuals are more likely to reduce their taxable income through legal tax deductions than low-income individuals. Second, while the effective tax rates paid by high-income individuals are relatively low, optimal tax rates could be as high as 63%.

/pdf/personal-income-tax-and-income-inequality-in-ecuador-between-5688lb2058.pdf

Liliana Cano

Papers

Top Income Shares in a Growing South American Economy: Ecuador 2004-2011

Personal Income Tax and Income Inequality: Ecuador 2007-2011

Personal income tax and income inequality in Ecuador between 2007 and 2011