Economic Growth and Inequality: Evidence from the Young Democracies of South America

Available from: 
January 2013
Paper author(s): 
Manoel Bittencourt
Topic: 
Politics and Economy
Poverty - Inequality - Aid Effectiveness
Fiscal Policy, Public and Welfare Economics
Year: 
2013

We investigate in this paper whether income growth has played any role on inequality in all nine young South American democracies during the period 1970-2007. The results, based on dynamic panel time-series analysis, robustly suggest that income growth has indeed played a progressive role in reducing inequality during the period. Moreover, the results suggest that this negative relationship is even stronger in the 1990s and early 2000s, a period in which the continent achieved macroeconomic stabilisation, political consolidation and much improved economic performance. On the contrary, during the 1980s (the so-called "lost decade"), the negative income growth experienced by the continent at the time has hit the poor the hardest, or alternatively speaking, it has played a regressive role on inequality. All in all, we suggest that consistent growth, and all that it encompasses, is an important equaliser which should not be discarded as a serious option by policy makers interested in a more equal income distribution.

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