Inequality Overhang

The Distribution of Income and Wealth within States Since the Beginning of the Twentieth Century

“…122 In essence, the authors find that there is an 'overhang' value at which point the relationship switches from positive to negative.123 Simply put, up until a Gini coefficient of a certain level-of approximately 0.27 in respect of incomes after taxes and transfers for the purposes of their studythe observed income distribution or level of inequality is positively associated with economic growth. 124 As the Gini coefficient crosses the threshold of 0.27, however, a higher coefficient begins to be negatively associated with economic growth.125 Moreover, once the Gini coefficient crosses the threshold its association with economic growth becomes negative at a faster rate as the coefficient grows. 126 Research has also been conducted into the length or sustainability of economic growth spells.…”

“…124 As the Gini coefficient crosses the threshold of 0.27, however, a higher coefficient begins to be negatively associated with economic growth.125 Moreover, once the Gini coefficient crosses the threshold its association with economic growth becomes negative at a faster rate as the coefficient grows. 126 Research has also been conducted into the length or sustainability of economic growth spells. For example, Andrew Berg, Jonathan Ostry and Jermonin Zettelmeyer have found empirical support for the view 'that less equal and cohesive societies experience lower and more volatile growth' .127 More explicitly for current purposes, this finding translates into the idea that more equal distributions do not only result in greater overall growth over a period of time but also lead to growth being more sustainable over that same period of time.128 These findings are important for at least two reasons: first, economic growth remains a-if not the-stated policy objective of most states around the world;129 and secondly, aggregate economic growth-as a means to certain ends-is often touted for its ability to alleviate poverty.…”