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Income Inequality and Economic Growth: Heterogeneity and Nonlinearity

This paper examines the relationship between income inequality and economic growth in a broad panel of countries over the period from 1965 to 2014. We utilize an improved dataset for inequality with reduced measurement errors, which fosters cross-country comparability. In addition, we investigate whether accounting for heterogeneity across countries alters the estimated effect of inequality on growth, and whether the inequality-growth nexus varies with the level of income inequality. Our estimates show that after accounting for heterogeneity, the nonlinear growth effect of income inequality remains statistically and economically significant. We find a threshold effect of inequality on economic growth, and this threshold is higher for developing economies than for developed economies.

Acknowledgments

The authors would like to thank the Editor, Professor Bruce Mizrach, and two anonymous reviewers for their constructive comments that helped improve the paper.

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The Impact of Income Inequality on Economic Growth: Evidence from Vietnam

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• Thi Hong Linh Phi 6 ,
• Thi Thanh Huyen Bui 6 ,
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The aim of this study is to examine the impact of unequal income distribution on economic growth in Vietnam. Data are collected from the Statistical Yearbook, Vietnam Household Living Standards Survey published by the General Statistics Office and the Local Statistical Departments. The paper has employed the econometric model to measure the impact of income inequality on Vietnam's economic growth since 2010. Of which, the dependent variable is economic growth rate, while the independent variables include population growth rate, income gap index (Kuznets ratio), investment rate, educational attainment and unemployment rate. The paper reveals that the rising inequality of income distribution reports a negative impact on economic growth in the case of Vietnam. Further, the paper offers several policy implications drawing on evidence-based results for the double target of economic growth and income equality of Vietnam.

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National Economics University, Hanoi, Vietnam

Thi Hong Linh Phi, Thi Thanh Huyen Bui & Van Dai Nguyen

Vietnam National University Ho Chi Minh City, Ho Chi Minh City, Vietnam

Dinh Hung Nguyen

VNU University of Economic and Law, Vietnam National University, Ho Chi Minh City, Vietnam

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Thu Thuy Pham

Department of Economics, Sungkyunkwan University, Seoul, Korea (Republic of)

Department of Economics, Tamkang University, New Taipei City, Taiwan

Yen-Ling Lin

Manh Cuong Dong

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Phi, T.H.L., Bui, T.T.H., Nguyen, D.H., Dai Nguyen, V., Nguyen, T.H.V. (2023). The Impact of Income Inequality on Economic Growth: Evidence from Vietnam. In: Nguyen, A.T., Pham, T.T., Song, J., Lin, YL., Dong, M.C. (eds) Contemporary Economic Issues in Asian Countries: Proceeding of CEIAC 2022, Volume 2. CEIAC 2022. Springer, Singapore. https://doi.org/10.1007/978-981-99-0490-7_11

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High Interest Rates Are Hitting Poorer Americans the Hardest

The economy as a whole has proved resilient amid the highest rates in decades. But beneath the surface, many low- and moderate-income families are struggling.

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By Ben Casselman and Jeanna Smialek

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Virginia Diaz thought she was on track for a secure retirement when she moved to Florida from New York nearly 20 years ago. But she drew down her savings and built up credit card debt helping family members, including a niece with health issues. Now high prices and high interest rates are putting her retirement in jeopardy.

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Many liberal economists agree, arguing that inflation has fallen enough that the Fed should start cutting rates before it causes more severe economic damage.

“High interest rates really forced cracks in that recovery, and it’s folks who are on the margins of our economy who are hit first and hit hardest,” said Rakeen Mabud, chief economist at the Groundwork Collaborative, a progressive group. “They really serve as a bellwether for what could happen to the rest of our economy.”

But Fed officials argue it is essential to bring inflation under control, in part because it, too, has a bigger impact on the poor, who have little room in their budgets to accommodate higher prices.

“If you’re a person who’s living paycheck to paycheck, and suddenly all the things you buy, the fundamentals of life, go up in price, you are in trouble right away,” Jerome H. Powell, the Fed chair, said at a news conference this month. “And so, with those people in mind in particular, what we’re doing is we’re using our tools to bring down inflation.”

And while high interest rates have affected many families, they have not so far caused the widespread job losses that many progressive critics predicted and that have historically been hardest on lower-wage workers. The unemployment rate remains low, including for Black and Hispanic workers, who are often more prone to lose their jobs when the economy weakens. And wage growth over the past several years has been strongest for lower-paid workers.

For most people, “the big issue is whether you’re holding onto your job,” said C. Eugene Steuerle, a fellow at the Urban Institute who has studied how monetary policy affects inequality.

But high rates today could make it harder for many families to build wealth in the longer run by making homeownership more difficult. They could also curb the construction of apartments and houses, which over time could further push up rents.

The result: a generation of young adults who fear they can neither afford to buy nor rent.

Chris Nunn, 31, has accumulated more than $6,000 in credit card debt, most of it from moving expenses tied to rent increases. His rent in Louisville, Ky., keeps rising, and he sees little hope of paying off the debt with what he makes driving for DoorDash while completing a college degree.

“We don’t have the credit to be able to buy a house, and we have a bunch of debt, either student loans or credit card debt,” he said. “So we’re trapped.”

Ben Casselman writes about economics with a particular focus on stories involving data. He has covered the economy for nearly 20 years, and his recent work has focused on how trends in labor, politics, technology and demographics have shaped the way we live and work. More about Ben Casselman

Jeanna Smialek covers the Federal Reserve and the economy for The Times from Washington. More about Jeanna Smialek

Economics Online

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UMass Economics offers several online courses each fall, winter, spring and summer for UMass degree and non-degree seeking students. These classes are administered by the UMass University Without Walls office (UWW). These courses serve a variety of students including UMass commuters, UMass students who live away from Amherst each winter and summer and want to take extra courses outside of fall and spring semesters, UMass degree-seeking seniors trying to finish up only a few remaining courses and credits away from Amherst, UMass students who want to take an online version of a UMass course along with their other face-to-face courses in a given semester, students taking non-degree Economics classes for personal interest or professional development, or non-degree UMass students who attend another college or university full time.  Note:  UMass degree-seeking students who take online University+ Economics courses in fall and spring semesters are subject to additional Univ+ course fees above and beyond standard tuition for the fall and spring. Contact the UMass University+ office for details and visit their  website  to learn about  course fees and billing ,  financial aid  and  how to enroll  in these courses.

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