Measuring Income Inequality and Implications for Economic Transmission Channels

Author/Editor:

Robert Blotevogel ; Eslem Imamoglu ; Kenji Moriyama ; Babacar Sarr

Publication Date:

August 14, 2020

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

We study the channels that theoretically transmit the effects of inequality to economic growth, unlike much of the existing literature that focuses on the direct linkage. The role of inequality in these transmission channels is difficult to pin down and varies with the particular inequality indicator chosen. We run our analyses with six methodologically distinct inequality measures (Gini coefficients and Top10 income shares). Methodological differences within the set of Gini coefficients and the Top10 income shares exert a first-order impact on the estimated relationships, which is generally larger than the effect of switching between Gini and Top10 income shares. For a given inequality indicator, we find that the transmission channels can react in opposite directions, with the net effect on growth difficult to determine. Finally, we emphasize two additional but so far underappreciated empirical complications: (i) estimated relationships change over time; and (ii) fragile countries create significant but counterintuitive empirical associations that may obscure structural relationships.

Series:

Working Paper No. 20/164

Notes:

Appendix for WP/20/164

Frequency:

regular

English

Publication Date:

August 14, 2020

ISBN/ISSN:

9781513554501/1018-5941

Stock No:

WPIEA2020164

Format:

Paper

Pages:

41

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