Does income inequality hinder economic growth? New evidence using Australian taxation statistics

Tom Kennedy, Russell Smyth, Abbas Valadkhani, George Chen

Research output: Contribution to journalArticleResearchpeer-review

6 Citations (Scopus)

Abstract

Using taxation statistics, we first derive consistently defined Gini coefficients for the period 1942-2013 for Australia as a whole as well as its eight states and territories. While income inequality exhibited a downward trend until 1979, it has since been on the rise not only over time, but also across states and territories. We then proceed to examine the effect of inequality on economic growth after controlling for changes arising from investment in physical and human capital using available panel data across all states and territories (1986-2013). We find that inequality adversely affects economic growth with a couple of years delay, an outcome consistent with similar studies undertaken in the United States and Europe. Our findings suggest that policymakers can address rising income inequality by implementing measures that support, and enhance, human capital accumulation given its long-run economic and social benefits.

Original languageEnglish
Pages (from-to)119-128
Number of pages10
JournalEconomic Modelling
Volume65
DOIs
Publication statusPublished - Sep 2017

Keywords

  • Australia
  • Gini coefficient
  • Income distribution
  • States and territories
  • Taxation

Cite this

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Does income inequality hinder economic growth? New evidence using Australian taxation statistics. / Kennedy, Tom; Smyth, Russell; Valadkhani, Abbas; Chen, George.

In: Economic Modelling, Vol. 65, 09.2017, p. 119-128.

Research output: Contribution to journalArticleResearchpeer-review

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AB - Using taxation statistics, we first derive consistently defined Gini coefficients for the period 1942-2013 for Australia as a whole as well as its eight states and territories. While income inequality exhibited a downward trend until 1979, it has since been on the rise not only over time, but also across states and territories. We then proceed to examine the effect of inequality on economic growth after controlling for changes arising from investment in physical and human capital using available panel data across all states and territories (1986-2013). We find that inequality adversely affects economic growth with a couple of years delay, an outcome consistent with similar studies undertaken in the United States and Europe. Our findings suggest that policymakers can address rising income inequality by implementing measures that support, and enhance, human capital accumulation given its long-run economic and social benefits.

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