American Economic Review Vol. 84 No. 3 1994
Is Inequality Harmful for Growth?
Abstract
Is inequality harmful for growth? We suggest that it is. In a society where distributional conflict is important, political decisions produce economic policies that tax investment and growth-promoting activities in order to redistribute income. The paper formulates a theoretical model that captures this idea. The model's implications are supported by the evidence. Both historical panel data and postwar cross sections indicate a significant and large negative relation between inequality and growth. This relation is only present in democracies.
- Volume
- 84
- Issue
- 3
- Pages
- 600-621
- Sources
- bibtex:phds-export.bib