Convergence of consumption patterns during macroeconomic transition: A model of demand in Ireland and the OECD

This study uses country-level panel data on consumption in Ireland and seven other OECD countries to examine the evolution of Irish consumption patterns as Ireland underwent rapid macroeconomic growth. Consumption levels obviously increased due to substantially higher incomes, but it is less clear how the shares of different types of goods purchased have changed or whether Ireland's consumption mix has converged with that of other high-income countries. Rankings based on a simple distance measure of consumption similarity suggest that Ireland moved from a “low-income” pattern similar to Portugal or Greece to a “high-income” pattern like that of Canada between 1995 and 2003. Using static and dynamic Almost Ideal Demand System models, we first estimate long- and short-run Irish price and income elasticities for nine categories of commodities between 1976 and 2003. These results provide evidence of substantial habit formation in aggregate consumption. We then estimate a long-run cross-country model covering six aggregate commodity groups between 1975 and 2003. The analysis shows that Ireland's demand parameters remain more similar to those of Greece than to higher-income OECD countries in the sample. Although Ireland has overtaken most other OECD countries in per capita income, it is still converging to a higher-income consumption pattern. We foresee further convergence of Irish expenditure patterns towards a pattern typical of high-income countries.     

Social conflict and growth

Despite the predictions of the neoclassical theory of economic growth, we observe that poor countries have invested at lower rates and have not grown faster than rich countries. To explain these empirical regularities we provide a game-theoretic model of conflict between social groups over the distribution of income. Among all possible equilibria, we concentrate on those that are on the constrained Pareto frontier. We study how the level of wealth and the degree of inequality affects growth. We show how lower wealth can lead to lower growth and even to stagnation when the incentives to domestic accumulation are weakened by redistributive considerations.     

The relationship between income inequality and aggregate saving: an empirical analysis using cross-country panel data

If the rich save more than the poor, an increase in income inequality raises aggregate saving. We investigate whether income inequality is positively related to aggregate saving ratio by estimating a fixed-effect model based on a panel data of 48 countries for the period 1991–2010. We find evidence that aggregate saving ratio increases with income inequality using various inequality measures. In particular, the effect of income distribution on saving is greater and statistically more significant with in financially developed, rich and OECD countries. It suggests that the rich save much more than the poor under advanced financial system and in a rich country. We also find that the relationship between income inequality and saving ratio is closer in the 2000s than the 1990s. This finding may result from financial development and the high income level in the 2000s.     

Inequality and growth: What comes from the different inequality measures?

The objective of the paper is to verify if income inequality impedes the growth rates in OECD countries in the period of 1990–2014 and to reveal whether the choice of the income inequality measure determines the sign and the strength of the estimated relationship. We use system GMM to estimate parameters of a dynamic panel growth model. The research indicates that income inequality negatively affects economic growth. We also find evidence that various measures of inequality bring the different scale of consequences for economic growth, with measures that give more weight to the middle part of the distribution being the weakest predictor of GDP growth. Simultaneously, we present the test of weak instruments, which helps to explain these differences.     

Income Distribution and Redistribution

Abstract:

It seems that some observable structural trends in recent decades such as globalization, skills-biased technological advances and level of unionization all over the world have been affected by income distribution, in addition to other economic variables. The latest trends in the 2000s exhibited a widening gap between the rich and the poor not only in some of the already high inequality countries, but also in traditionally low inequality countries. In order to mitigate inequality, many countries have followed redistribution policies (taxes and transfers). In this article, we will mainly focus on the effects of redistribution policies consisting of income taxes and social transfers on income inequality using the micro data in Turkey. Additionally, since financial crises have been becoming more important with increasing frequency of crises all over the world, we also search for the effects of crises on inequality and the degree of mitigation of redistributive policies, especially during the Global Recession.     

The political economy of income comparisons and economic growth

The literature on income inequality has provided various explanations as to how income inequality can affect growth, with the emphasis on ideas such as investments in human capital, issues of occupational choice, or the redistributive policies of governments. Inequality not only has a direct effect on the distribution of consumption in an economy, but it also has a powerful effect on people's subjective sense of well being. This paper takes a novel approach by focusing on the way in which a government's choice of economic policy can be influenced by how individuals perceive themselves relative to other individuals, both within the country and in foreign countries. The chosen policy affects economic growth, with the assumption being that policies that promote growth also tend to result in more switching of individuals between income groups. We show that the government's optimal policy depends on the importance of both inside country and outside country income comparisons, the fraction of national income earned by the different income groups, the potential magnitude of economic growth, the probability of switching between income groups in the presence of growth, and the relative importance of the various income groups. The model predicts that a greater degree of inside country income comparison is bad for growth whereas more outside country comparison is good for growth.     

Genetic distance,economic growth and top income shares: Evidence from OECD countries

The relationship between economic growth and income inequality remains a puzzle in the literature. The main problem has been finding a way to account for the endogeneity of growth. Using century-long data of 14 OECD countries, this study disentangles the growth–inequality relationship. In doing so, our main contribution is employing genetic and geographical distances as instruments for economic growth. The instruments are constructed on the premise that the growth of one country spills over to the others if they are connected through trade and other forms of exchange; however, the genetic and geographical distances between countries represent barriers to such spillovers. Using alternative specifications and measures, we find that growth reduces the inequality measured by top income shares. As capital share increases in the growth process and capital substitutes labour, inequality-reducing strength of growth declines. Another important finding is that the effect of growth on top income shares is more significant among the highest income groups.     

The impact of unemployment on inequality and poverty in OECD countries

The purpose of this research is to examine the contribution of unemployment to income inequality and poverty in various OECD countries. These relationships have been explored using Luxembourg Income Study micro-data. Considerable differences across OECD countries are revealed through the use of within-household unemployment distributions. These differences help to explain most of the observed divergences in the relationship between unemployment and income distribution, in conjunction with the heterogeneous influence of social benefits on the economic position of the unemployed in these countries. A sub-group decomposition analysis corroborates the limited effect of unemployment on income distribution in most of the considered countries. However, it seems clear that the unemployed are among those with the highest risk of experiencing poverty.
JEL classification: D31, I32, J31.     

Deunionization and pay inequality in OECD Countries: A panel Granger causality approach

The impact of unionization on wage inequality has been examined by a vast literature. Focusing mostly on the US and the UK in time series analyses or on OECD countries in panel data analyses, a bulk of these studies have found a negative impact of deunionization (i.e. decline in the union density rate) on distribution of wages. By utilizing two inequality data sets both provided by the University of Texas Inequality Project and the union density data set provided by OECD this paper contributes to the literature, analyzing the causality relationship between deunionization and pay inequality for 24 OECD countries for the 1963–2000 period within a panel Granger structure. Our findings show not only that there is causality from union density to income inequality but also, perhaps more importantly, point out that there is causality running from income inequality to union density for various set of countries and time periods.     

The effects of fragility and financial inequalities on inclusive growth in African countries

Africa has the largest number and proportion of fragile states in the world. Fragile states are characterized by slower economic growth, higher incidences of poverty, and persistent inequality. Thus, there is a circular relationship between fragility, inequality, and slow economic growth. This study examines the relationship between fragility, financial inequalities, and inclusive growth in African countries. We introduce a novel way of examining inclusive growth in African countries by developing a unified measure of inclusive growth that captures the two dimensions of inclusive growth: income growth and income distribution. This enables us to adequately assess not just increased opportunities arising from economic growth, but also see how those new opportunities are distributed across all segments of the population. We captured the fragile status of African countries by using an index of fragility. We measured financial inequalities using new data on financial inclusion. The data analysis suggested negative relationships between fragility and inclusive growth in African countries. In addition, the results suggest positive relationships between financial inclusion and inclusive growth. Thus, inclusive growth can be fostered through policies that reduce financial inequalities. Therefore, a less fragile environment is conducive to inclusive growth both directly and indirectly through financial inclusion.     

Household income mobility in rural China: 1989–2006

This article analyzes household income mobility in rural China between 1989 and 2006. The results indicate that incomes in rural China are highly mobile. The high degree of rank and quantity mobility implies re-ranking and mean convergence in income distribution, but the disparity between them also enlarged with leveling-up and Gini divergence brought about by economic growth. In addition, there exists considerable transitorily poor and rich in positional mobility. Though, transitory movement provides an opportunity for both poor and rich and decreases long-term inequality, it also causes considerable income fluctuations and economic insecurity. Moreover, the equalizing effect of income mobility on income inequality is weakening.     

Income distribution, borrowing constraints and redistributive policies

This paper sheds light on the relationship between income inequality and redistributive policies and provides possible guidance in the specification of empirical tests of such a relationship. We model a two-period economy where capital markets are imperfect and agents vote over the level of taxation to finance redistributive policies that enhance future productivity. In this context, we show that the pivotal voter is not necessarily the agent (class) with median income. In particular, the poor, who are more likely to be liquidity constrained, may form a coalition with the rich and vote for low redistribution. The effects of an increase in income inequality on the level of redistribution turn out to depend on whether the increase in inequality is concentrated among the poor or the middle class. Empirical results from a panel of 22 OECD countries provide preliminary evidence consistent with our main theoretical implications.     

The creation of effective states in the OECD since 1870: The role of inequality

Research shows that state capacity is crucial for economic development, yet the impact of inequality on state capacity is not well understood. This paper examines the impact of income inequality on three key dimensions of state capacity, namely legal, fiscal and collective capacity using annual data for a core of 21 OECD countries over the period 1870–2013. We find that the marked reduction in inequality over most of the last century starting from 1916 was pivotal to the significant improvements in legal, fiscal and collective capacity in the OECD countries over the same period.     

Has Globalization Increased Inequality?*

There is no shortage of theories that purport to explain why globalization may have adverse, insignificant, or even beneficial effects on income and earnings inequality. Surprisingly, the empirical realities remain an almost complete mystery. In this paper, we use data on industrial wage inequality, household income inequality as well as measures of the economic, social and political dimensions of globalization to examine this controversial issue. Overall, while we find that globalization has exacerbated inequality; this is particularly true in the case of income inequality in OECD countries.     

STRUCTURAL CHANGES AND THE DISTRIBUTION OF INCOME BY SIZE: THE CASE OF INDIA

The interrelation between changes in the economic structure, i.e., industrial distribution of income and labor force, and the size distribution of income is studied in this paper in a case study of India (1951–1960).
The change in the size distribution of income is the sum of changes due to (1) inter-sectoral factors and (2) intra-sectoral factors. The need for this distinction is emphasized by the result obtained for India, that 85% of the changes in the size distribution may be assigned to inter-sectoral factors, and only 15% to intra-sectoral factors. Since the inter-sectoral factors are significantly influenced by changes in the industrial distribution of income and labor force, our result points out a relation between economic growth and the size distribution which quite often is overlooked in studies of the size distribution.
The results obtained in this paper support several cross-section results of Professor Kuznets. In particular some of these are: (a) inter-sectoral inequality in the economic structure widened with economic growth, (b) the inequality in the size distribution of India widened, (c) the level of inequality in India is higher than in any of the eight developed countries considered.     

Labour-market institutions, (un)employment,wages, and growth: theory and data

We analyse the implications of labour-market institutions on wage inequality in favour of skilled labour, on relative unemployment of unskilled labour, and on the economic growth rate in two clusters resulting from 27 OECD countries: Cluster 1, closely related with the Anglo-Saxon model, and Cluster 2, dominated by the Continental-European model. By linking the unskilled wage to the skilled one in Cluster 2, due to the indexation of social benefits to per-capita income, we accommodate the observed paths of the three variables in both clusters between 1991 and 2008: Cluster 1 presents a higher wage inequality in favour of skilled labour, a lower unemployment of the unskilled labour, and a better economic growth rate.     

Entrepreneurship, Economic Risks, and Risk Insurance in the Welfare State: Results with OECD Data 1978–93

We find evidence in the OECD cross-country data to support the Knightian view that non-diversifiable economic risks shape equilibrium entrepreneurship in an occupational choice model. Differential social insurance of entrepreneurial and labor risk is found to be statistically significant and detrimental to entrepreneurship. The crowding-out effect of public production of private goods on entrepreneurship dominates the crowding-in effect of public production of public goods in the OECD data. Weak evidence is found for the proposition that the rate of entrepreneurship is related to the degree of income inequality and to the union power in the economy. The results also suggest that in countries with low GDP per capita ratio, self-employment is high.     

我国收入不平等、金融发展和消费需求波动的实证研究:1978～2001

本文考察了收入不平等与总消费需求变动之间的联系,在高收入地区,不平等程度越大似乎消费需求波动越大,而在低收入地区,收入不平等越大,消费需求波动反而较小。本文找到证据表明金融发展水平能有助于解释为什么收入分配在高收入和低收入地区中影响消费需求的短期波动是不同的,本文的政策含义是,加快低收入地区如中西部的经济和金融发展步伐,加大金融发展相机调整的力度。     

Corruption, Income Distribution, and Growth

This paper uses an encompassing framework developed by Murphy et al. (1991, 1993) to study corruption and how it affects income distribution and growth. We find that (1) corruption affects income distribution in an inverted U-shaped way, (2) corruption alone also explains a large proportion of the Gini differential across developing and industrial countries, and (3) after correcting for measurement errors, corruption seems to retard economic growth. But the effect is far less pronounced than the one found in Mauro (1995). Moreover, corruption alone explains little of the continental growth differentials. In countries where the asset distribution is less equal, corruption is associated with a smaller increase in income inequality and a larger drop in growth rates.     

Inequality,Redistribution, and the Financial Crisis: Evidence from Distributional National Accounts for Austria

In this paper, we provide novel findings regarding the distributional effects of the global financial and economic crisis and how redistribution operated during this time, using detailed data for Austria. We construct distributional national accounts for the period 2004–2016 by combining survey data, tabulated tax data, and detailed national accounts data. The comprehensive data set allows us to analyze the distribution of macroeconomic income growth across the income distribution and to explore the evolution of income inequality over time. Our results suggest that as the distribution of growth changed over time, this had considerable repercussions for inequality, which started to decline at the very beginning of the economic and financial crisis, but increased again after 2012. We find that capital income largely determined both the level and the dynamics of income inequality. Government spending was found to play a key role for redistributive effects across the income distribution. In particular, in-kind transfers redistributed pre-tax income to a large extent. Our results show further that individuals with lower educational levels and younger individuals faced negative growth in pre-tax income over the years and also benefited considerably from redistribution.