Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2005:8: Income Inequality and Growth: A Panel Study of Swedish Counties 1960-2000

Ruth-Aïda Nahum ()
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Ruth-Aïda Nahum: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: This paper explores the relationship between income inequality and growth using panel data on Swedish counties from 1960-2000. Compared to standard methods of estimating this relationship yearly regional level data are used, and inequality is allowed to be endogenous. We find a significant positive impact of inequality on growth, but the magnitude of the effect decreases with the length of the growth period studied. When allowing income inequality to be endogenous, using a panel 2SLS IV estimation, we find positive effect of inequality on 1 to 5-year growth rates, when significant, whereas the effect on 10-year growth rates are not clear cut.

Keywords: Income inequality; regional economic growth; panel data

JEL-codes: D31; O15; O40

39 pages, March 8, 2005

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