Income inequality, democracy and growth reconsidered

Persson and Tabellini (Persson, T., Tabellini, G., 1992a. Growth, distribution and politics. Eur. Econ. Rev. 36, 593–602; Persson, T., Tabellini, G., 1992b. Growth, distribution and politics. In: Cukierman, A., Hercowitz, Z., Leiderman, L. (Eds.), Political Economy, Growth, and Business Cycles. MIT Press, Cambridge, MA, pp. 3–22; Persson, T., Tabellini, G., 1994. Is inequality harmful for growth? Am. Econ. Rev. 84, 600–621) as well as Alesina and Rodrik (Alesina, A., Rodrik, D., 1992. Distribution, political conflict, and economic growth. In: Cukierman, A., Hercowitz, Z., Leiderman, L. (Eds.), Political Economy, Growth, and Business Cycles. MIT Press, Cambridge, MA, pp. 23–50; Alesina, A., Rodrik, D., 1994. Distributive politics and economic growth, Q. J. Econ. 109, 465–490) have argued that income inequality reduces economic growth rates among democracies because it promotes distributional struggles. In this paper I question the supportive evidence for a number of reasons. Measures of income distribution and democracy are unreliable and permit only very tentative conclusions. Changes in data sources or recoding of some influential cases affect results. It is questionable whether equality effects on growth apply only within democracies, as a median voter interpretation of this relationship should make one expect. The general idea that distributional struggle hurts the growth prospects of nations, however, receives some empirical support.     

Financial development,control of corruption and income inequality

This paper examines the effect of financial development and control of corruption on income inequality in 21 Sub-Saharan African (SSA) countries over the period 1985–2011 using the pooled mean group (PMG) estimator. The empirical results show that financial development measures have positive impact on income inequality, which suggest that financial development increases income inequality. On the other hand, the coefficients of control of corruption are negative and significantly related to income inequality which implies that corruption control reduces income inequality. Further, the interaction of the financial development and the control of corruption is found to be negatively and significantly related to income inequality. Equally the interaction of the financial development and transparency index (an alternate measure of corruptibility) is found to be negatively and significantly related to income inequality. These findings suggest that the control of corruption and transparency in governance are crucial in reducing income inequality in SSA.     

When income differences hurt or excite: The nonlinear effect of regional inequality on subjective wellbeing

Combining information from the European Union Statistics on Income and Living Conditions and the European Social Survey, we investigate the relationship between subjective well-being and income inequality using regional inequality indicators and individual data. We assume that inequality aversion and perception of social mobility affect the impact of regional inequality on subjective well-being in opposite directions. We find evidence of an inverse U-shaped effect of inequality, where inequality starts to have a positive effect on subjective well-being that becomes negative with a switch point before the average of the Gini index for the entire sample. The rationale for our nonlinear finding is that Hirschman's tunnel effect (and the positive effect of perceived social mobility) prevails for low levels of inequality, while inequality aversion and negative relative income effects are relatively stronger when inequality is higher. Robustness checks on different sample splits are consistent with the hypothesis of the two drivers.     

Income inequality and economic growth

Despite the extensive existing literature on income inequality and economic growth, there remains considerable disagreement on the effect of inequality on economic growth. Existing literatures find either a positive or a negative relationship. In this paper, we attempt to theoretically examine that relationship with a stochastic optimal growth model. We make the disagreement clear within a single model. We conclude (i) that both are possible – that is, higher inequality can retard growth in the early stage of economic development, and can encourage growth in a near steady state, (ii) that income redistribution by high income tax does not always reduce income inequality. Income inequality can be reduced by higher income tax in a near steady state, but it cannot be reduced in the early stage of economic development, and (iii) that two government polices – rapid economic growth and low income inequality – can be achieved by low income tax in the early stage of economic development, but both cannot be achieved simultaneously in a near steady state.     

Income inequality and FDI: evidence with Turkish data

This article explores how foreign direct investment (FDI) and other determinants impact income inequality in Turkey in the short- and long-run. We apply the nonlinear auto-regressive distributed lag (ARDL) modelling approach, which is suitable for small samples. The data for the study cover the years from 1970 to 2008. The empirical results indicate the existence of a co-integration relationship among the variables with asymmetric adjustment of the income distribution in the short- and long-run. The negative impact of FDI on the Gini coefficient, decreasing income inequality, is statistically significant in the short- and long-run, though with a quantitatively small impact in both cases. In the short run, GDP growth increases inequality initially, an effect that is reversed in the next period, increases in domestic gross capital formation decreases inequality, and increases in the literacy rate have very minor adverse effects on income equality. However, in the long run these variables have no statistically significant effects on the Gini coefficient. A reduction in the population growth rate reduces inequality in the short run but has no effect in the long run, whereas an increase in the rate reduces inequality in the long run but has no effect in the short run.     

Interior immigration enforcement policy and the subjective well-being of US residents: evidence from secure communities

There were increased efforts to enhance interior enforcement of immigration laws in the United States in recent years. Considering that more interior immigration enforcement measures are going to be proposed in the near future, there is a need to evaluate whether such policy can achieve its objective and imparts some benefits to the population it is supposed to help. In this article, I examine the impact of one of the largest interior immigration enforcement effort – Secure Communities – on the subjective well-being of US residents. The analyses show that there is no evidence that Secure Communities statistically significantly increased the proportion of white or black non-Hispanics reporting that they were satisfied with their life. Evaluated at the mean, at 10% significance level, the results suggest that I can rule out an effect size larger than 0.5% and 1% for white and black non-Hispanics, respectively. Since only a small share of white or black non-Hispanics are foreign-born, this finding suggests that the benefit of Secure Communities to US-born individuals that are coming through an increase in their life satisfaction is not economically large.     

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。     

The silver linings of lottery play: motivation and subjective well-being of British lottery participants

Although certain researchers have attributed widespread lottery play to irrational beliefs that people hold regarding the chances of winning the lottery, another explanation for the popularity of lottery gambling is that lottery players may experience positive emotions before the draw. Therefore, in this study, we examine the relationship between lottery participation and happiness. Using data from the British Gambling Prevalence Survey 2010 and utilizing propensity score matching methods, we find a small positive effect of lottery participation on happiness for individuals who engage in lottery play for recreational purposes.     

Income inequality,unemployment, and poverty in Nigeria: a vector autoregressive approach

The main features of poverty are low levels of consumption and income, a fact‐of‐life in most African countries. This paper analyzes the fundamental trends of per capita income, government capital expenditure, the human development index, and the rate of unemployment in the Nigeria. A vector autoregressive model finds that: A reduced unemployment rate improves human development and consequently reduces poverty. As growth in public capital expenditure rises, unemployment falls and the human development index improves. Therefore, infrastructure‐based policies, which initially reduce unemployment, will also improve the living conditions of Nigerians in the end.     

Income inequality and income bias in voter turnout

In the era of growing income inequality around the world, it remains inconclusive how higher income inequality affects income bias in turnout (i.e., high-income citizens vote more likely than low-income citizens). Using large-scale cross-national survey data, we show that (1) strong income bias in turnout exists in many parts of the world, (2) higher income inequality is related to lower income bias in turnout by demobilizing high-income citizens and mobilizing low-income citizens, and (3) this relationship is partly explained by the pattern that vote buying is more common in societies with higher income inequality and thus mobilizes low-income citizens but decreases political efficacy among high-income citizens. Ultimately, this study suggests that growing income inequality may not exaggerate political inequality, but may challenge the legitimacy of democratic elections.     

Status-seeking behavior,the evolution of income inequality,and growth

Using an overlapping generations model, this paper investigates the implications of status-seeking behavior, induced by preferences for relative income, for the evolution of income inequality. When average income rises, an individual’s marginal utility of their own income may increase (keeping up with the Joneses, or KUJ), or decrease (running away from the Joneses, or RAJ). It is shown that income inequality is shrinking over time in the KUJ economy, whereas it is expanding in the RAJ economy. We also explore the implications for long-run growth and inequality, in the existence of both KUJ and RAJ agents. I am truly grateful to Koichi Futagami for his encouragement and guidance in writing this paper. I have benefitted from comments by an anonymous referee, Been-Lon Chen, Giacomo Corneo, Akiomi Kitagawa, Kazuo Mino, Kazuhiro Yuki, and seminar participants at Osaka University, the 2006 Japanese Economic Association Autumn Meeting at Osaka City University, the Far Eastern Meeting of Econometric Society 2007 at Taipei, SER Conference 2007 at Singapore, and the European Meeting of Econometric Society 2007 at Budapest. All remaining errors are, of course, my own. The financial support from JSPS Research Fellowships for Young Scientists is greatly acknowledged.     

Household Debt,Consumption, and Income Inequality

Using the Johansen and Engle–Granger cointegration tests, we show that there is one cointegrating relationship between household debt, consumption, and income inequality in the United States for the period from 1929 to 2009. Given this result, we use a Vector Error-Correction model to further understand the dynamics among the three variables. Results indicate that increases in income inequality and consumption directly contribute to increases in household debt. Interestingly, the results reveal some feedback from household debt to income inequality. We also show that debt-driven consumption should be viewed with caution as the results show that increases in household debt correspond with future declines in the rate of consumption.     

Decomposition of the Gini Index by Sources of Income

The Gini concentration coefficient is considered to be the best synthetic inequality measure and is widely used in economic research. In this paper, we present its decomposition by factor components with an application to income distributions in Poland. Income inequality measures proposed by Gini, Zenga and Bonferroni are calculated for different socio-economic groups based on their exclusive or primary source of maintenance. For theoretical income distribution, the Dagum type-I model was used. The basis for the calculations was the individual data coming from the Household Budgets Survey conducted quarterly by the Polish Central Statistical Office. Using the decomposition of inequality by source, we were able to examine how changes in particular income components affected overall inequality.      

Income inequality and education revisited: persistence,endogeneity and heterogeneity

This article presents new results on the relationship between income inequality and education expansion – that is, increasing average years of schooling and reducing inequality of schooling. When dynamic panel estimation techniques are used to address issues of persistence and endogeneity, we find a large, positive, statistically significant and stable relationship between inequality of schooling and income inequality, especially in emerging and developing economies and among older-age cohorts. The relationship between income inequality and average years of schooling is positive, consistent with constant or increasing returns to additional years of schooling. While this positive relationship is small and not always statistically significant, we find a statistically significant negative relationship with years of schooling of younger cohorts. Statistical tests indicate that our dynamic estimators are consistent and that our identifying instruments are valid. Policy simulations suggest that education expansion will continue to be inequality reducing. This role will diminish as countries develop, but it could be enhanced through a stronger focus on reducing inequality in the quality of education.     

Redistribution,trade and corruption: an empirical assessment

ABSTRACT

This article explores the role of institutional quality in the trade and inequality nexus. Does corruption shape the relationship between trade and inequality through its impact on redistribution? Our answer to this question builds on the hypothesis that trade raises inequality and that governments may want to intervene through appropriate redistribution schemes that aim at taxing the gains from trade in a way that offsets the negative effects of trade on inequality. Moreover, we argue that this mechanism may be distorted by corruption and bad institutions in general. Quite to the contrary to common wisdom, we find that trade reduces inequality in countries with high institutional standards by means of a low level of corruption but increases inequality in countries with low levels of institutional quality.     

Long term trends in fair and unfair inequality in the United States

This article analyses the microeconomic sources of wage inequality in the United States from 1967–2012. Decomposing inequality into factors categorized by degree of personal responsibility, education explains over twice as much of inequality today as 45 years ago. However, neither hours worked nor education, industry, marital status, or geographical location can explain the rise in income inequality. In fact, ‘unfair’ inequality (income disparity derived from non-responsibility factors) has risen faster than ‘fair’ inequality (income disparity derived from responsibility factors), regardless of the set of variables chosen as fair sources of inequality. We further examine income inequalities within gender and racial groups, finding substantial heterogeneity. Overall, using micro data to understand the sources of inequality and how these changes over time can provide better information for policymakers motivated to combat rising inequality.     

Growth, income distribution and well-being in transition countries

We apply several well-being measures that combine average income with a measure of inequality to international and intertemporal comparisons of well-being in transition countries. Our well-being measures drastically change the impression of levels and changes in well-being compared to a traditional reliance on income measures. Due to low inequality and moderate income levels, socialist countries enjoyed relatively high levels of economic well-being. In the transition process, rising inequality and falling incomes have led to a dramatic absolute decline in well-being and a considerable drop in relative well-being vis-à-vis non-transition countries. We also find a close correlation between income losses and inequality increases. While the transition has been successful in expanding political and civil rights, our indicators suggest that most transition countries are still below the level of economic well-being of the late 1980s.
JEL classification: D6, O15, P27.     

Market Demand Elasticity and Income Inequality

This paper deals with the analysis of the relation between aggregate demand for a consumption good and the distribution of income across consumers. We obtain sufficient conditions under which changes in income inequality lead to an increase or decrease in the market demand elasticities. The conditions are satisfied for individual demand functions commonly used in economic models, in particular, for the typical demand functions on luxury goods and necessities. An earlier version of this paper was titled “Market demand elasticity, equilibrium stability and income inequality”. The authors are grateful to an anonymous referee, Aydin Cecen and Herbert Scarf for helpful comments and suggestions. R. Ibragimov gratefully acknowledges the financial support from the Yale Graduate Fellowship and the Cowles Foundation Prize.     

Income Distribution,Econophysics and Piketty

Piketty, Atkinson and Saez have put the analysis of income distribution back on center stage. The distinction between property income and labor income plays a central role in this framework. Property income derives from the rate of return on stocks of income-earning wealth and is more unequally distributed than labor income. Piketty argues that, because the rate of return (r) is generally greater than the rate of growth of the economy (g), property income tends to grow more rapidly than labor income, so that rising income inequality is an intrinsic tendency of capitalism despite interruptions due to world wars and great depressions. This article argues the exact opposite. The rise of unions and the welfare state were the fruits of long-term historical gains made by labor, and the postwar constraints on real and financial capital arose in sensible reaction to the Great Depression. The ‘neoliberal’ era beginning in the 1980s significantly rolled back all of these. The article uses the econophysics two-class argument of Yakovenko to show that we can explain the empirical degree of inequality using two factors alone: the profit share and the degree of financialization of income. The rise of inequality in the neoliberal era then derives from a reduction in the wage share (rise in the profit share) in the face of assaults on labor and the welfare state, and a sharp increase in the financialization of incomes as financial controls are weakened. These are inherently socio-political outcomes, and what was lost can be regained. Hence, there is no inevitable return to Piketty’s ‘patrimonial capitalism’.     

绝对收入、相对收入与主观幸福感——来自中国城乡住户调查数据的经验分析

文章以我国住户调查数据为基础,经验性地讨论了收入与主观幸福感的关系.研究表明,绝对收入与主观幸福感之间具有显著的正向关联,即便控制了相对收入效应,绝对收入的影响仍较显著.因此无论是相对意义还是绝对意义,收入仍然是提升主观幸福感的重要因素.但是另一方面,主观幸福感与收入水平之间的相关程度并不高,主观幸福感决定中的非收入因素也值得进一步关注.