How Macroeconomic Factors Affect Income Distribution: The Cross-Country Evidence

IMF Working Papers, November 1, 1997

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How Macroeconomic Factors Affect Income Distribution: The Cross-Country Evidence

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Bibliographic details

• Authors: Michael Sarel
• Published: November 1, 1997
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451922714.001

Summary

• This study develops a cross-section empirical framework to examine the relationship between the macroeconomic environment and trends in income distribution.
• The macroeconomic variables found to be associated with an improvement in income distribution are:
  • higher growth rate
  • higher income level
  • higher investment rate
  • real depreciation (especially for low-income countries)
  • improvement in terms of trade
• The estimated significant effects of growth, income, and investment provide evidence that policies designed to promote investment and growth are likely also to contribute to an improvement in income distribution.

Key empirical findings

• Macroeconomic variables associated with improved income distribution:
  • higher growth rate
  • higher income level
  • higher investment rate
  • real depreciation (especially for low-income countries)
  • improvement in terms of trade
• Significant estimated effects:
  • growth (significant)
  • income (significant)
  • investment (significant)

Policy implications

• Policies designed to promote investment are likely to contribute to an improvement in income distribution.
• Policies designed to promote growth are likely to contribute to an improvement in income distribution.
• Real exchange rate dynamics and terms of trade improvements can affect income distribution, with real depreciation particularly relevant for low-income countries.

Subject classifications and keywords

• Subject: Foreign exchange, Income distribution, Income inequality, Inflation, National accounts, Personal income, Prices, Real exchange rates
• Keywords: after-tax wage income, chg Gini coefficient, Gini coefficient, growth rate, in-kind income, Inc net, income, income distribution, income distribution issue, income distribution variable, Income inequality, income level, Inflation, inflation stabilization program, interest income, macroeconomic factors, net, net effect, Ols regression, Personal income, rate of change, Real exchange rates, WP

Content in this bundle

• How Macroeconomic Factors Affect Income Distribution: The Cross-Conutry Evidence -WP/97/152
  • How Macroeconomic Factors Affect Income Distribution: The Cross-Conutry Evidence -WP/97/152 (Markdown version)
  • How Macroeconomic Factors Affect Income Distribution: The Cross-Conutry Evidence -WP/97/152 (PDF)