Abstract
Using the series of the top 1% income shares in 137 countries, I examine the relationship between top-end inequality and subsequent economic growth from the 1920s to the 2010s. These data enable a versatile exploration of various time horizons. To address concerns regarding chosen functional forms, I employ penalized spline methods to accommodate potential nonlinearities. Empirical findings suggest that the relationship between top-end inequality and subsequent growth is complex, contingent upon both the investigated time horizon and the level of economic development. I find some evidence for a positive link at medium levels of economic development, with this positive link being more pronounced in short- to medium-term associations. I also find that the positive medium-run association weakens as economic development advances. In advanced economies, a negative (or nonpositive) medium- to long-term relationship emerges between the top 1% income share and growth in many settings. Furthermore, I conclude that longer-run associations need to be investigated further.
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The data that support the findings of this study are available from the author upon request.
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Acknowledgements
The author appreciates the Editor Markus Jäntti and three anonymous reviewers, whose comments helped to improve the paper. The author also thanks Oded Galor, Ravi Kanbur, Omer Moav, Hannu Tanninen, Matti Tuomala, and Tapio Nummi for their comments on an earlier version of the paper. This research has been supported by the Research Council of Finland (formerly Academy of Finland) through projects 293120 (Work, Inequality and Public Policy) and 346250 (Finnish Centre of Excellence in Tax Systems Research). Remaining errors are the author’s own.
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Tuominen, E. Top-end inequality and growth: empirical exploration of nonlinearities and the time dimension. J Econ Inequal (2024). https://doi.org/10.1007/s10888-023-09604-7
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DOI: https://doi.org/10.1007/s10888-023-09604-7