Abstract
There is no automatic mechanism in a market economy to guarantee reduced inequality of income with growth. Some theories lead us to expect just the opposite. At best, there are self-limiting cyclical effects, associated with changes in unemployment. U.S. economic growth has actually been quite slow since the 1950s. Besides, there are structural barriers to reduced inequality that operate with or without growth. Historical evidence for different countries presents a mixed picture. For the U.S. economy, postwar growth has been associated with an upturn in measured inequality. Government intervention has been mildly equalizing, through transfers and expenditures but not through taxes.
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Notes
The cyclical behavior of income inequality in the U.S. has been confirmed empirically and its causes studied in C. Metcalf,An Econometric Model of Income Distribution (Chicago: Markham, 1972); T. Mirer, “The Effects of Macroeconomic Fluctuations on the Distribution of Income,”Review of Income and Wealth 19, 1973; R. Blank and A. Blinder, “Macroeconomics, Income Distribution, and Poverty,”Fighting Poverty: What Works and What Doesn’t, edited by S. Danziger and D. Weinberg (Cambridge, Mass.: Harvard University Press, 1986), pp. 182-208; and S. Danziger and P. Gottschalk, “Do Rising Tides Lift All Boats? The Impact of Secular and Cyclical Changes on Poverty,” mimeo, 1985.
See International Bank for Reconstruction and Development,World Development Report, 1982, 1989 (New York: Oxford University Press, 1982-89).
S. A. Morley,Labor Markets and Inequitable Growth: The Case of Authoritar-ian Capitalism in Brazil (New York: Cambridge University Press, 1982).
For an empirical test using cross-section data, see M. S. Ahluwalia, “Income Distribution and Development: Some Stylized Facts,”American Economic Review 66 (1976), pp. 128–35. This paper makes the useful distinction between a “short-term” relationship of income inequality with the rate of growth and a secular relationship of inequality with the level of development measured by per capita income. However, these relationships are not well identified with the cross-section data commonly used to make empirical tests. For this purpose intertemporal data would seem more appropriate.
For various analyses of the data and discussions of the findings see S. Danziger and E. Smolensky, “Income Inequality: Problems of Measurement and Interpretation,” inAmerican Society, Inc., 2nd ed., edited by M. Zeitlin (Chicago: Rand McNally, 1977); M. Reynolds and E. Smolensky, “Post-Fisc Distribution of Income in 1950, 1961, and 1970,”Public Finance Quarterly 5 (1977), pp. 419-38; M. Reynolds and E. Smolensky,Public Expenditures, Taxes, and the Distribution of Income (New York: Academic Press, 1977); J. A. Pechman,Who Paid the Taxes, 1966–85 (Washington, D.C.: Brookings Institution, 1985); P. Gottschalk and S. Danziger, “A Framework for Evaluating the Effects of Economic Growth and Transfers on Poverty,”American Economic Review 75 (1985), pp. 153-61; and Danziger and Gottschalk, “Do Rising Tides Lift All Boats.”
M. Reynolds and E. Smolensky, “Post-Fisc Distribution,” p. 429.
P. Lindert and J. Williamson, “Three Centuries of American Inequality,”Research in Economic History 1 (New York: JAI Press, 1976). This paper notes (p. 108, n.13): “The Gini coefficient produced by the OBE-Goldsmith data seems to have dropped by about 0.110 between 1929 and 1951. By comparison, Reynolds and Smolensky (Public Expenditures), have estimated that the total redistributive effect of all government spending and taxation was on the order of 0.079 for 1950, and about 0.110 for 1970. To improve comparability, transfer payments should be subtracted from the OBE-Goldsmith data. Doing so would bring the pre-fisc equilization of 1929–1951 down to about the 1950 estimate of government redistribution.”
Pechman,Who Paid the Taxes, p. 60.
Lindert and Williamson, “Three Centuries,”; J. Williamson and P. Lindert,American Inequality, A Macroeconomic History, New York: Academic Press, 1980.
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Harris, D.J. Economic growth and equity: Complements or opposites?. The Review of Black Political Economy 21, 65–72 (1993). https://doi.org/10.1007/BF02701705
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DOI: https://doi.org/10.1007/BF02701705