Does the profile of income inequality matter for economic growth?

This paper investigates the importance of the shape of the income distribution as a determinant of economic growth in a panel of countries. Using comparable data on disposable income from the Luxembourg Income Study, results suggest that inequality at the top end of the distribution is positively associated with growth, while inequality lower down the distribution is negatively related to subsequent growth. These findings highlight potential limitations of an exploration of the impact of income distribution on growth using a single inequality statistic. Such specifications may capture an average effect of inequality on growth, and mask the underlying complexity of the relationship.