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Does Income Distribution Affect U.S. State Economic Growth?

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Numerous models propose an income-distribution/growth linkage, but the empirical evidence is ambiguous and depends on the regression approach. Mixed findings are not unexpected if there are differing short- and long-term responses. Approaches utilizing cross-sectional variation primarily reflect long-run effects, whereas those using time-series variation primarily reveal short-run effects. This study reconciles these issues using U.S. state data. After allowing for short- and long-run responses and for separate effects between the tails and middle of the distribution, the consistent pattern is the middle-class share and overall inequality are positively related to long-run growth. However, the short-run income-distribution response is less clear.
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Document Type: Research Article

Affiliations: University of Saskatchewan, Saskatoon, SK S7N 5A8, Canada., Email: [email protected]

Publication date: 2005-05-01

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