This paper describes the correlations between inequality and the growth rates in crosscountry 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 associatedwithreducedgrowthinthenextperiod. Theestimatedrelationshipisrobustto variations in control variables and estimation methods. This inverted U-curve is consistent with a simple political economy model but it could also reflect the nature of measurement errors,and,ingeneral,efforts to interpret this evidence 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.
To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.