Skip to main content
SpringerLink
Log in

Existing Empirical Evidence on the Nexus Between Income Distribution and Economic Growth

  • Chapter
  • First Online:
Secular Stagnation Theories

Part of the book series: Springer Studies in the History of Economic Thought ((SSHET))

  • 405 Accesses

Abstract

This chapter provides a short literature review on the empirical nexus between income distribution and economic growth. It briefly discusses the economic impact of changes in the functional distribution of income (wage- versus profit-led economic regimes), but also approaches the topic of equality- and inequality-led economic growth, as well as the distributional impact of economic growth.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 89.00
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 119.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 119.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    The ex-post rate of real capital accumulation in goods market equilibrium is given by \(g\, = \, \frac{I}{K} \, = \, s_p\pi u\). Assuming a constant ratio of total saving to profits \((s_p)\), it is the profit share \((\pi )\) and the degree of capacity utilization \((u)\) which play the dominant role. If aggregate demand \((Y)\) and hence the degree of capacity utilization \((u)\) are wage-led, economic growth \((g)\) may still decline with a rise in the wage share (i.e., a fall in the profit share) if the positive impact of a rise in the wage share on \(u\) is comparatively small. Following Marglin and Bhaduri (1990), this may happen when real capital accumulation reacts only little to a rise in \(u\), but strongly to a decline in \(\pi \).

  2. 2.

    A growth spell is defined as a period “[...] of at least five years during which growth is above 2 percent and significantly higher than during preceding years [...]” (Ostry et al. 2014, p. 16).

  3. 3.

    In a subsequent analysis, Berg and Ostry (2017, pp. 804–808) similarly identify a more equal distribution of income as an important driver of longer growth periods.

  4. 4.

    On the finding that the source of economic change matters, see also Auclert and Rognlie (2017, 2018). In analyzing their theoretical framework, they find that the cause of variations in the distribution of income is important in determining their economic impact.

References

  • Ahluwalia MS (1976) Income distribution and development: some stylized facts. Am Econ Rev 66(2):128–135

    Google Scholar 

  • Alesina A, Rodrik D (1994) Distributive politics and economic growth. Q J Econ 109(2):465–490

    Article  Google Scholar 

  • Atkinson AB (2015) Inequality: what can be done? Harvard University Press, Cambridge, MA, and London

    Google Scholar 

  • Auclert A, Rognlie M (2017) Aggregate demand and the top 1 percent. Am Econ Rev Pap Proc 107(5):588–592

    Article  Google Scholar 

  • Auclert A, Rognlie M (2018) Inequality and aggregate demand. NBER Working Paper No. 24280. National Bureau of Economic Research, Cambridge, MA. https://www.nber.org/papers/w24280. Accessed 29 Nov 2018

  • Banerjee AV, Duflo E (2003) Inequality and growth: what can the data say? J Econ Growth 8(3):267–299

    Article  Google Scholar 

  • Barro RJ (2000) Inequality and growth in a panel of countries. J Econ Growth 5(1):5–32

    Article  Google Scholar 

  • Behringer J, Theobald T, van Treeck T (2016) Ungleichheit und makroökonomische Instabilität: Eine Bestandsaufnahme. Friedrich-Ebert-Stiftung, Bonn

    Google Scholar 

  • Bénabou R (1996) Inequality and growth. In: Bernanke BS, Rotemberg JJ (eds) NBER macroeconomics annual 1996, vol 11. The MIT Press. Cambridge, MA, pp 11–74

    Google Scholar 

  • Berg AG, Ostry JD (2017) Inequality and unsustainable growth: two sides of the same coin? IMF Econ Rev 65(4):792–815

    Article  Google Scholar 

  • Bhaduri A, Marglin S (1990) Unemployment and the real wage: the economic basis for contesting political ideologies. Camb J Econ 14(4):375–393

    Article  Google Scholar 

  • Blecker RA (2002) Distribution, demand and growth in neo-Kaleckian macro-models. In: Setterfield M (ed) The economics of demand-led growth: challenging the supply-side vision of the long run. Edward Elgar, Cheltenham and Northhampton, MA, pp 129–152

    Google Scholar 

  • Blecker RA (2016) Wage-led versus profit-led demand regimes: the long and the short of it. Rev Keynes Econ 4(4):373–390

    Article  Google Scholar 

  • Bourguignon F (1994) Growth, distribution, and human resources. In: Ranis G (ed) En route to modern growth: essays in honor of Carlos Díaz-Alejandro. Inter-American Development Bank and The John Hopkins University Press, Washington, DC, pp 43–70

    Google Scholar 

  • Bourguignon F (2004) The poverty-growth-inequality triangle. World Bank Working Paper 28102. The World Bank, Washington, DC. http://documents.worldbank.org/curated/en/449711468762020101/pdf/28102.pdf. Accessed 09 Mar 2018

  • Boushey H, Price CC (2014) How are economic inequality and growth connected? A review of recent research. Washington Center for Equitable Growth, Washington, DC. https://equitablegrowth.org/wp-content/uploads/2014/10/100914-ineq-growth.pdf. Accessed 13 Aug 2018

  • Brueckner M, Norris ED, Gradstein M (2015) National income and its distribution. J Econ Growth 20(2):149–175

    Article  Google Scholar 

  • Cingano F (2014) Trends in income inequality and its impact on economic growth. OECD Social, Employment and Migration Working Papers No. 163. OECD, Paris. https://doi.org/10.1787/5jxrjncwxv6j-en. Accessed 18 Nov 2018

  • Deininger K, Squire L (1996) A new data set measuring income inequality. World Bank Econ Rev 10(3):565–591

    Article  Google Scholar 

  • Deininger K, Squire L (1998) New ways of looking at old issues: inequality and growth. J Dev Econ 57(2):259–287

    Article  Google Scholar 

  • Dollar D, Kraay A (2002) Growth is good for the poor. J Econ Growth 7(3):195–225

    Article  Google Scholar 

  • Dollar D, Kleineberg T, Kraay A (2015) Growth, inequality and social welfare: cross-country evidence. Econ Policy 30(82):335–377

    Article  Google Scholar 

  • Dollar D, Kleineberg T, Kraay A (2016) Growth still is good for the poor. Eur Econ Rev 81:68–85

    Article  Google Scholar 

  • Ederer S, Stockhammer E (2007) Wages and aggregate demand: an empirical investigation for France. In: Hein E, Truger A (eds) Money, distribution and economic policy: alternatives to orthodox macroeconomics. Edward Elgar Publishing, Cheltenham, pp 119–138

    Google Scholar 

  • Forbes KJ (2000) A reassessment of the relationship between inequality and growth. Am Econ Rev 90(4):869–887

    Article  Google Scholar 

  • Gornick JC, Jäntti M (2013) Introduction. In: Gornick JC, Jäntti M (eds) Income inequality: economic disparities and the middle class in affluent countries. Stanford University Press, Stanford, MA, pp 1–47

    Google Scholar 

  • Hartwig J (2014) Testing the Bhaduri-Marglin model with OECD panel data. Int Rev Appl Econ 28(4):419–435

    Article  Google Scholar 

  • Hein E (2014) Distribution and growth after Keynes: a post-Keynesian guide. Edward Elgar, Cheltenham and Northampton, MA

    Google Scholar 

  • Hein E, Vogel L (2008) Distribution and growth reconsidered: empirical results for six OECD countries. Camb J Econ 32(3):479–511

    Article  Google Scholar 

  • Hermansen M, Ruiz N, Causa O (2016) The distribution of the growth dividends. OECD Economics Department Working Papers No. 1343. OECD Publishing, Paris. https://doi.org/10.1787/7c8c6cc1-en. Accessed 19 Aug 2018

  • Krugman P, Atkinson AB (2013) Inequality and economic growth: Paul Krugman & Tony Atkinson in conversation. Moderated by Chrystia Freeland. May 20, 2013. Presented by the Graduate Center of the City University of New York (CUNY), the Luxembourg Income Study (LIS), and the Advanced Research Collaborative (ARC). Video available at https://www.youtube.com/watch?v=zAFCaDS4a6Q. Uploaded on 01 June 2013 by the Graduate Center of the City University of New York (CUNY). Accessed 21 Aug 2018. Duration: 1:26:54 hours

  • Kuznets S (1955) Economic growth and income inequality. Am Econ Rev 45(1):1–28

    Google Scholar 

  • Lavoie M (2014) Post-Keynesian economics: new foundations. Edward Elgar, Cheltenham and Northampton, MA

    Google Scholar 

  • Li H, Hf Zou (1998) Income inequality is not harmful for growth: theory and evidence. Rev Dev Econ 2(3):318–334

    Article  Google Scholar 

  • Marglin SA, Bhaduri A (1990) Profit squeeze and Keynesian theory. In: Marglin SA, Schor JB (eds) The golden age of capitalism: reinterpreting the postwar experience. Clarendon Press, Oxford, pp 153–186

    Google Scholar 

  • Naastepad CW, Storm S (2006) OECD demand regimes (1960–2000). J Post Keynes Econ 29(2):211–246

    Article  Google Scholar 

  • Onaran Ö, Galanis G (2013) Is aggregate demand wage-led or profit-led? A global model. In: Lavoie M, Stockhammer E (eds) Wage-led growth: an equitable strategy for economic recovery. Palgrave Macmillan and International Labour Organization, London, pp 71–99

    Google Scholar 

  • Onaran Ö, Galanis G (2014) Income distribution and growth: a global model. Environ Plan A 46(10):2489–2513

    Article  Google Scholar 

  • Onaran O, Obst T (2016) Wage-led growth in the EU15 member-states: the effects of income distribution on growth, investment, trade balance and inflation. Camb J Econ 40(6):1517–1551

    Article  Google Scholar 

  • Onaran Ö, Stockhammer E (2005) Two different export-oriented growth strategies: accumulation and distribution in Turkey and South Korea. Emerg Mark Financ Trade 41(1):65–89

    Article  Google Scholar 

  • Ostry JD, Berg A, Tsangarides CG (2014) Redistribution, inequality, and growth. IMF Staff Discussion Note 14/02. International Monetary Fund, Washington, DC. https://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf. Accessed 24 Nov 2018

  • Palley TI (2017) Inequality and growth in neo-Kaleckian and Cambridge growth theory. Rev Keynes Econ 5(2):146–169

    Google Scholar 

  • Paukert F (1973) Income distribution at different levels of development: a survey of evidence. Int Labour Rev 108:97–125

    Google Scholar 

  • Perotti R (1996) Growth, income distribution, and democracy: what the data say. J Econ Growth 1(2):149–187

    Article  Google Scholar 

  • Persson T, Tabellini G (1994) Is inequality harmful for growth? Am Econ Rev 84(3):600–621

    Google Scholar 

  • Skott P (2017) Weaknesses of ‘wage-led growth’. Rev Keynes Econ 5(3):336–359

    Article  Google Scholar 

  • Stockhammer E, Onaran Ö (2004) Accumulation, distribution and employment: a structural VAR approach to a Kaleckian macro model. Struct Chang Econ Dyn 15(4):421–447

    Article  Google Scholar 

  • Voitchovsky S (2005) Does the profile of income inequality matter for economic growth? Distinguishing between the effects of inequality in different parts of the income distribution. J Econ Growth 10(3):273–296

    Article  Google Scholar 

  • Voitchovsky S (2009) Inequality and economic growth. In: Salverda W, Nolan B, Smeeding TM (eds) The Oxford handbook of economic inequality. Oxford University Press, Oxford and New York, NY, pp 549–574

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. University of Hohenheim, Stuttgart, Baden-Württemberg, Germany

    Christina Anselmann

Authors
  1. Christina Anselmann
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Christina Anselmann .

Rights and permissions

Reprints and permissions

Copyright information

© 2020 Springer Nature Switzerland AG

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Anselmann, C. (2020). Existing Empirical Evidence on the Nexus Between Income Distribution and Economic Growth. In: Secular Stagnation Theories. Springer Studies in the History of Economic Thought. Springer, Cham. https://doi.org/10.1007/978-3-030-41087-2_9

Download citation

Publish with us

Policies and ethics

Search

Navigation