Abstract
Using the latest available data and semiparametric methods, we investigate how human and physical capital accumulation affects the relationship between income inequality and subsequent economic growth. We find that higher income inequality generally reduces economic growth over the next 5-year period. Within nations possessing little human capital, this inequality-growth penalty is exacerbated by higher levels of physical capital, thus implying that as the returns to human capital rise relative to physical capital, inequality becomes more harmful to growth. This inequality-growth pattern does not hold in well educated nations.
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We would like to thank Oded Galor, Jang-Ting Guo, Lant Pritchett, Daniel Henderson, Aman Ullah, and two anonymous referees for their helpful comments, discussions, and suggestions. All remaining errors are our own.
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Chambers, D., Krause, A. Is the relationship between inequality and growth affected by physical and human capital accumulation?. J Econ Inequal 8, 153–172 (2010). https://doi.org/10.1007/s10888-009-9111-x
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DOI: https://doi.org/10.1007/s10888-009-9111-x