Brueckner, MarkusLederman, Daniel2015-07-172015-07-172015-06https://hdl.handle.net/10986/22203This paper estimates the effect of income inequality on real gross domestic product per capita using a panel of 104 countries during the period 1970–2010. The empirical analysis addresses endogeneity issues by using instrumental variables estimation and controlling for country and time fixed effects. The analysis finds that, on average, income inequality has a significant negative effect on transitional gross domestic product per capita growth and the long-run level of gross domestic product per capita. However, the impact varies by the level of economic development, so much so that in poor countries income inequality has a significant positive effect on gross domestic product per capita.en-USCC BY 3.0 IGOINDUSTRIALIZED COUNTRIESINCOME SHAREGOVERNMENT EXPENDITURESECONOMIC GROWTHCAPITAL ACCUMULATIONINCOMEINDIVIDUAL COUNTRIESINCOME QUINTILESECONOMETRIC MODELREAL GDPGDP PER CAPITAECONOMIC REVIEWDEVELOPING COUNTRIESEMPIRICAL LEVELPOLICY CIRCLESFISCAL POLICYPOLICY DISCUSSIONSVARIABLESEMPIRICAL STUDIESLAGGED VALUESMARGINAL EFFECTWEALTHMEASURESEMPIRICAL LITERATUREINSTRUMENTSINCOME INEQUALITY DATAEMPIRICAL ANALYSISDEVELOPMENTMARKET IMPERFECTIONSSTANDARD DEVIATIONEMPIRICAL RESULTSDEVELOPMENT ECONOMICSEDUCATIONAL ATTAINMENTFOREIGN AIDECONOMICS OF EDUCATIONDESCRIPTIVE STATISTICSINCOME INEQUALITYDATA QUALITYSIGNIFICANCE LEVELSIGNIFICANT NEGATIVEECONOMETRICSPER CAPITA GROWTHGROSS DOMESTIC PRODUCT PER CAPITANEGATIVE COEFFICIENTINDICATORSLAND OWNERSHIPPRODUCTRELATIVE PRICESGROSS DOMESTIC PRODUCTTAXESCONSUMPTIONHUMAN CAPITALCREDIT MARKET IMPERFECTIONSEXPLANATORY VARIABLECOUNTRY LEVELCAPITALECONOMIC STUDIESESTIMATED COEFFICIENTVALUEDEPENDENT VARIABLELAND INEQUALITYCREDITMACROECONOMICSPOOR COUNTRIESNATIONAL INCOMEDYNAMIC PANELINEQUALITY DATANEGATIVE EFFECTINCOME DISTRIBUTIONINCOMESESTIMATED COEFFICIENTSAGGREGATE OUTPUTERROR TERMSECONDARY SCHOOLINGECONOMIC THEORYECONOMICSEMPIRICAL RESEARCHLAGGED DEPENDENTFIXED EFFECTSDATA SETSECONOMIC DEVELOPMENTPOSITIVE EFFECTTRADERICH COUNTRIESGDPDATA SETTHEORYCROSS-COUNTRY DIFFERENCESWARINVESTMENTINCOME SHARESPOVERTYGINI COEFFICIENTEMPIRICAL EVIDENCEDISTRIBUTION OF WEALTHPOLICY RESEARCHRISING INEQUALITYPOORCAPITAL INVESTMENTDEVELOPMENT INDICATORSINTERNATIONAL COMPARISONSMIDDLE INCOME COUNTRIESINEQUALITY COEFFICIENTLONG RUNINCOME LEVELCREDIT MARKETDEVELOPMENT POLICYINEQUALITYGROWTHWorking PaperWorld Bank10.1596/1813-9450-7317