Inequality, Redistribution, and Growth in Developed Countries

Abstract This paper examines the effect of inequality and redistribution on growth in a panel of developed OECD countries with dynamic fixed effects (DFE) estimates. It is found out that redistribution is neutral to growth while disposable inequality is weakly positive for long-run aggregate output. Population growth is also a determinant of aggregate output. On the other hand, the analysis does not find evidence of a significant effect of both inequality and redistribution in the short-run as well as of top and bottom inequality. The analysis suggests that in economies that are more unequal a win-win process to increase equality and growth through redistributive taxes is likely to be effective, even if the overall effect is low and time demanding. JEL classifications: O11, O15, O47, E62, H23 Keywords: Inequality, Redistribution, Growt