Unequal Opportunity, Unequal Growth
This paper argues that inequality can be both good and bad for growth, depending on what inequality and whose growth. Unequal societies may be holding back one segment of the population while helping another. Similarly, high levels of income inequa...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/10/26854147/unequal-opportunity-unequal-growth http://hdl.handle.net/10986/25298 |
| Summary: | This paper argues that inequality can be
both good and bad for growth, depending on what inequality
and whose growth. Unequal societies may be holding back one
segment of the population while helping another. Similarly,
high levels of income inequality may be due to a variety of
different factors; some of these may be good while others
may be bad for growth. The paper tests this hypothesis by
“unpacking” both inequality and growth. Total inequality is
decomposed into inequality of opportunity, due to observed
factors that are beyond the individual's control, and
residual inequality. Growth is measured at different steps
of the income ladder to verify whether low, middle, and top
income households fare differently in societies with high
(low) levels of inequality. In an application to the United
States covering 1960 to 2010, the paper finds that
inequality of opportunity is particularly bad for growth of
the poor. When inequality of opportunity is controlled for,
the importance of total income inequality is dramatically
reduced. These results are robust to different measures of
inequality of opportunity and econometric methods. |
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