Effect of income inequality on growth (credit market imperfection channel)
| Dependent variable | M2/GDP | Per capita GDP | Per capita GDP | Per capita GDP |
|---|---|---|---|---|
| M2/GDPt-1 | 0.8675*** (0.0183) | |||
| Per capita GDPt-1 | 0.9847*** (0.0094) | 0.9868*** (0.0169) | 1.0098*** (0.0165) | |
| Per capita GDPt | 0.0560*** (0.0127) | |||
| Gini index | −0.1213* (0.0727) | −0.0204 (0.0355) | −0.0054 (0.0468) | −0.0544* (0.0310) |
| Gross capital formation | 0.0269 (0.0239) | 0.0272*** (0.0092) | 0.0168* (0.0099) | 0.0285* (0.01609) |
| M2/GDP | 0.0001 (0.0025) | |||
| Human capital | 0.0127 (0.0103) | −0.0159 (0.0142) | ||
| General government expenditure | −0.0397* (0.0230) | |||
| Labor force | 0.0013 (0.0082) | −0.0259*** (0.0104) | −0.0277*** (0.0099) | −0.0282 (0.0176) |
| Openness | −0.0274*** (0.0094) | −0.0196* (0.0107) | −0.0370** (0.0181) | |
| Inflation | −0.0015*** (0.0002) | 4.73e–07 (3.63e–07) | −0.0004 (0.0002) | −0.0007* (0.0004) |
| Life expectancy | −0.0100 (0.0262) | −0.0071 (0.0627) | ||
| Gini index*M2 | −0.0498* (0.0288) | |||
| Constant | 0.8562 (0.3647) | 0.0495 (0.2226) | 0.0247 (0.1785) | 0.4040 (0.2861) |
| Cross sections | 31 | 31 | 31 | 31 |
| Instruments | 28 | 28 | 29 | 19 |
| Hansen test | 0.428 | 0.281 | 0.282 | 0.528 |
| AR (1) | 0.243 | 0.000 | 0.001 | 0.009 |
| AR (2) | 0.308 | 0.877 | 0.593 | 0.528 |
Sources of data, description, and measurement of variables
| Variable | Description | Measurement | Source (s) of data |
|---|---|---|---|
| INEQ | Market Gini | Gini index of inequality in equivalized household (pretax and pretransfer) income | Standardized World Income |
| Y | GDP per capita | Income per head for individuals in the population obtained as the GDP divided by the total population | WDI |
| K | Physical capital | Gross fixed capital formation | WDI |
| L | Labor force | Total labor force | WDI |
| H | Human capital | Primary school enrollments | WDI |
| OPEN | Openness | Exports plus imports/GDP | WDI |
| FR | Total fertility rate | Number of births per woman | WDI |
| HCE | Health care expenditure | General government expenditure on health per capita in constant (2005) dollars | World Health Organization (WHO) |
| INF | Inflation rate | Consumer prices (annual %) | WDI |
| GGOV | General government expenditure | General government final consumption expenditure | United Nations database |
| M2 | M2/GDP | Broad money as a percentage of GDP | WDI |
| SAV | Saving | Gross national savings | IMF World Economic Outlook |
| UPR | Urbanization | Urban population growth (annual %) | WDI |
| LE | Life expectancy | Life expectancy at birth | WDI |
| IMR | Infant mortality rate | This is expressed per 1,000 live births | WDI |
Effect of income inequality on economic growth via the human capital channel
| Dependent variable | Human capital | Per capita GDP | Per capita GDP | Per capita GDP |
|---|---|---|---|---|
| Human capitalt-1 | 0.9987 (0.0054) | |||
| Per capita GDPt-1 | 1.0001*** (0.0062) | 0.9857*** (0.0077) | 0.9998*** (0.0148) | |
| Gini index | −0.0723*** (0.0246) | −0.0446* (0.0248) | −0.0541 (0.0410) | −0.1811* (0.0975) |
| Gross capital formation | 0.0147** (0.0077) | 0.02029*** (0.0057) | 0.0548*** (0.0223) | |
| Fertility rate | 0.0538** (0.0219) | |||
| Human capital | 0.0428** (0.0216) | |||
| Labor force | −0.0107 (0.0076) | −0.0626*** (0.0241) | −0.0394 (0.0488) | |
| Openness | −0.0179** (0.0087) | −0.0236*** (0.0061) | −0.0623*** (0.0225) | |
| Inflation | −0.0004*** (0.0001) | −0.0005*** (0.0001) | −0.0018* (0.0010) | |
| Life expectancy | −0.0271 (0.0318) | −0.4167*** (0.1601) | ||
| Urbanization | 0.0041 (0.0051) | |||
| Human capital*Gini index | −0.0173 (0.0543) | |||
| Constant | 0.2330 (0.1351) | 0.1633 (0.1895) | 0.2483 (0.1915) | 2.1651 (0.8149) |
| Cross sections | 31 | 31 | 31 | 31 |
| Instruments | 22 | 31 | 29 | 18 |
| Hansen test | 0.204 | 0.288 | 0.651 | 0.847 |
| AR (1) | 0.028 | 0.008 | 0.013 | 0.000 |
| AR (2) | 0.651 | 0.429 | 0.974 | 0.561 |
Effect of income inequality on economic growth via the fiscal policy channel
| Dependent variable | General government expenditure | Per capita GDP | Per capita GDP | Per capita GDP |
|---|---|---|---|---|
| General government expendituret-1 | 1.0033*** (0.0050) | |||
| Per capita GDPt-1 | 1.0183*** (1.0183) | 1.0182*** (0.0041) | 1.0106*** (0.0150) | |
| Gini index | 0.0218 (0.0744) | −0.0307 (0.0327) | −0.0474** (0.0211) | −0.0016** (0.0574) |
| Gross capital formation | 0.0007 (0.0020) | −0.0125 (0.0099) | 0.0683*** (0.0214) | |
| General government expenditure | 0.0119 (0.0097) | |||
| Life expectancy | −0.1193** (0.0612) | |||
| Labor force | 0.0014 (0.0037) | 0.0038 (0.0028) | −0.0084 (0.0182) | |
| Inflation | −8.09e–06*** (1.57e–06) | 1.46e–06*** (3.64e–07) | −0.0004*** (0.0001) | −0.0013* (0.0008) |
| Health care expenditure | 0.0242* (0.0144) | |||
| Urbanization | 0.0137*** (0.0052) | 0.0063*** (0.0015) | 0.0048*** (0.0011) | |
| Openness | −0.0185 (0.0189) | |||
| Gini index*General government expenditure | −0.0568** (0.0268) | |||
| Constant | −0.2489 (0.3794) | −0.0544 (0.12780) | 0.0253 (0.1207) | 0.5546 (0.3173) |
| Cross sections | 31 | 31 | 31 | 31 |
| Instruments | 24 | 29 | 21 | 20 |
| Hansen test | 0.583 | 0.293 | 0.336 | 0.570 |
| AR (1) | 0.048 | 0.001 | 0.002 | 0.000 |
| AR (2) | 0.346 | 0.831 | 0.958 | 0.850 |
Effect of income inequality on economic growth (saving channel)
| Dependent variable | Saving | Per capita GDP | Per capita GDP | Per capita GDP |
|---|---|---|---|---|
| Saving t-1 | 0.7874*** (0.1302) | |||
| Per capita GDP t-1 | 0.9633*** (0.0216) | 0.9628*** (0.0177) | 0.9724*** (0.0133) | |
| Per capita GDP | 0.0748949 (0.0860451) | |||
| Gini index | 0.0141 (0.2531) | −0.0169 (0.0839) | 0.0148 (0.0944) | 0.0898*** (0.0343) |
| Gross capital formation | 0.1207** (0.0554) | 0.0608*** (0.0222) | 0.0377* (0.0201) | −0.0005 (0.0104) |
| Saving | 0.0305** (0.0153) | |||
| General government expenditure | −0.1141** (0.0521) | |||
| Labor force | −0.0438 (0.0302) | −0.0248 (0.0327) | 0.0025 (0.0122) | |
| Openness | −0.0634*** (0.0231) | −0.0404 (0.0222) | 0.0012 (0.0110) | |
| Inflation | −0.0005*** (0.0001) | 0.0001 (0.0004) | 0.0015 (0.0016) | |
| Life expectancy | −0.1852* (0.1031) | −0.0274 (0.1247) | 0.2073** (0.0777) | |
| Saving*Gini index | 0.0194*** (0.0069) | |||
| Constant | −0.1916 (0.7285) | 0.4571 (0.7065) | −0.1704 (0.9698) | −1.1311 (0.3665) |
| Cross sections | 31 | 31 | 30 | 30 |
| Instruments | 19 | 21 | 21 | 28 |
| Hansen test | 0.557 | 0.300 | 0.328 | 0.229 |
| AR (1) | 0.027 | 0.009 | 0.004 | 0.000 |
| AR (2) | 0.361 | 0.328 | 0.786 | 0.697 |
Empirical studies on the transmission channels of the effect of income inequality on economic growth
| Authors | Mechanism/channel | Sample | Data structure | Measure of inequality | Estimation method | Validity or relevance of tested mechanism |
|---|---|---|---|---|---|---|
| Persson and Tabellini [1994] | Political economy (fiscal policy) | 13/43 countries (1960–1985) | Cross section | Income share of the fourth quintile | OLS; 2SLS | Rejected |
| Alesina and Perotti [1996] | Sociopolitical instability; Credit market imperfection | 71 countries (1960–1985) | Cross section | Income share of the third and fourth quintiles | 2SLS | Accepted |
| Perotti [1996] | Credit market imperfections | 62 countries (1960–1985) | Cross section | Income share of the third and fourth quintiles | OLS; 2SLS | Ambiguous result |
| Perotti [1996] | Fiscal policy | 49/27 countries (1960–1985) | Cross section | Income share of the third and fourth quintiles | OLS; 2SLS | Rejected |
| Perotti [1996] | Sociopolitical instability; Fertility | 64 countries (1960–1985) | Cross section | Income share of the third and fourth quintiles | OLS; 2SLS | Accepted |
| Deininger and Squire [1998] | Credit market imperfections | 52/81 countries (1960–1992) | Cross section | Land Gini coefficient | OLS | Accepted |
| Deininger and Squire [1998] | Fiscal policy | 52/81 countries (1960–1992) | Cross section | Land Gini coefficient | OLS | Rejected |
| Svensson [1998] | Political economy (Sociopolitical instability) | 101 countries 1960–1985 | Cross section | Income ratio between the share of income by the poorest 40% to the richest 20% | OLS | Accepted |
| Sylwester [2000] | Sociopolitical instability | 52 countries (1960–1992) | Cross section | Gini coefficient | 3SLS | Accepted (short run); Rejected (long run) |
| Barro [2000] | Saving | 84 countries (1965–1995) | Panel | Gini coefficient | OLS | Rejected |
| Deininger and Olinto [2000] | Human capital | 31/60 countries (1966–1990) | Panel | Land Gini coefficient | System GMM | Accepted |
| Mo [2000] | Human capital; Sociopolitical instability; Fiscal policy | 1970–1985 | Cross section | Gini index | 2SLS | Accepted |
| Keefer and Knack [2002] | Sociopolitical instability | 56/89 countries (1970–1992) | Cross section | Income; Land Gini coefficient | OLS | Accepted |
| Pineda and Rodríguez [2006] | Fiscal policy | Number of countries not available (1960–1997) | Panel | N/A | Random effects | Accepted |
| De Mello and Tiongson [2006] | Fiscal policy | 54 countries (1981–1998) | Cross section | Income Gini coefficient | OLS; Tobit | Accepted |
| Barro [2008] | Fertility | (1960–2000) | Cross section | Gini index | 3SLS | Accepted |
| Cingano [2014] | Human capital | 31 OECD countries (1970–2010) | Panel | Net and gross Gini | System GMM | Accepted |
| Cingano [2014] | Fiscal policy | 31 OECD countries (1970–2010) | Panel | Net and gross Gini | System GMM | Rejected |
| Grundler and Scheuermeyer [2018] | Human capital; Fertility; Saving; Fiscal policy | 164 countries (1965–2014) | Panel | Net and gross Gini | System GMM | Accepted |
| Madsen et al. [2018] | Saving; Investment; Education/knowledge production | 21 OECD countries | Panel | Gini index; Income share of top 10% | 2SLS; OLS | Accepted |
Effect of income inequality on economic growth via the fertility channel
| Dependent variable | Fertility rate | Per capita GDP | Per capita GDP | Per capita GDP |
|---|---|---|---|---|
| Fertility ratet-1 | 1.0304*** (0.0198) | |||
| Per capita GDPt-1 | 0.1497*** (0.0435) | 1.0082*** (0.0096) | 1.0298*** (0.0147) | 0.9853*** (0.0083) |
| Per capita GDP | −0.1473 (0.0438) | |||
| Gini index | 0.0098 (0.0158) | −0.0285 (0.0384) | −0.0729* (0.0409) | −0.0180 (0.0514) |
| Adolescent fertility rate | 0.0083*** (0.0033) | |||
| Infant mortality rate | −0.0146** (0.0072) | |||
| Gross capital formation | 0.0095** (0.0046) | 0.0021 (0.0023) | −0.0268*** (0.0092) | |
| Labor force | −0.0087* (0.0049) | −0.0051 (0.0046) | −0.0247** (0.0109) | |
| Fertility rate | −0.0103 (0.0394) | |||
| Openness | −0.0096* (0.0051) | −0.0285*** (0.0097) | ||
| Inflation | 1.22e−06*** (3.73e−07) | 2.48e–06*** (6.00e–07) | −0.0006*** (0.0001) | |
| Urbanization | 0.0060*** (0.0021) | 0.0104*** (0.0018) | ||
| Life expectancy | −0.2286*** (0.0917) | |||
| Gini index*Fertility rate | −0.0686*** (0.0215) | |||
| Constant | −0.0910 (0.0637) | −0.0235 (0.1402) | 0.0923 (0.1358) | 1.2872 (0.5421) |
| Cross sections | 31 | 31 | 31 | 31 |
| Instruments | 26 | 28 | 16 | 21 |
| Hansen test | 0.371 | 0.121 | 0.553 | 0.777 |
| AR (1) | 0.110 | 0.001 | 0.003 | 0.001 |
| AR (2) | 0.339 | 0.808 | 0.423 | 0.980 |
Descriptive statistics
| Variable | GDP | SAV | INEQ | L | OPEN | INF | LE | M2 | H | UPR | HCE | IMR | FR |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mean | 1570.08 | 14.92 | 40.50 | 6895886 | 445.39 | 48.88450 | 56.55 | 85.73 | 2401450 | 5676360 | 33.54 | 70.46 | 5.06 |
| Median | 835.97 | 14.76 | 43.50 | 4081389 | 202.80 | 5.826429 | 56.17 | 23.24 | 980033 | 2214526 | 31.00 | 68.60 | 5.31 |
| Maximum | 9468.94 | 45.84 | 68.50 | 55789427 | 6181.44 | 24411.03 | 77.79 | 18347.09 | 26167544 | 86561390 | 93.00 | 152.30 | 7.73 |
| Minimum | 182.70 | −18.03 | 0.00 | 132168 | 0.15 | −9.616154 | 33.33 | 0.00 | 0.000000 | 189769 | 3.00 | 12.70 | 1.36 |
| Standard deviation | 1885.53 | 10.56 | 17.96 | 9938663 | 846.39 | 957.5849 | 7.58 | 1001.35 | 3975386 | 11201148 | 20.27 | 27.17 | 1.34 |