Interrelation between Growth and Inequality

Abstract

on ongoing and recently completed research and policy studies undertaken by the Asian Development Bank (ADB) staff, consultants, or resource persons. The series deals with key economic and development problems, particularly those facing the Asia and Pacific region; as well as conceptual, analytical, or methodological issues relating to project/program economic analysis, and statistical data and measurement. The series aims to enhance the knowledge on Asia's development and policy challenges; strengthen analytical rigor and quality of ADB's country partnership strategies, and its subregional and country operations; and improve the quality and availability of statistical data and development indicators for monitoring development effectiveness.ABSTRACT v I. ABSTRACTInclusive growth should ensure "broad-based" economic growth which characterizes the pattern of growth. Beyond simple association identification implied by the Kuznets curve and cross-country panel regression analyses, this study attempts to shed light on the dynamic causality relationship and impact channel between economic growth and inequality-using vector error correction model (VECM) and vector autoregression (VAR) models for individual economies. If growth has a negative impact on inequality, renewed attention should be paid to curbing inequality. Those economies experiencing inclusive growth can further promote growth with less risk of sacrificing equity. This also provides useful implications for development interventions through designing and monitoring projects and programs. Given the growing challenges of reducing inequality, economies could create a proper inequality target as a binding constraint in pursuing economic growth, instead of using a growth-first and redistribution-later strategy.

Fiscal policy, institutions and inclusive growth: evidence from the developing Asian countries

“…However, positive and significant results are obtained when they are used in the form of interaction terms with institutions, confirming the fact that institutions enhance the working of fiscal policy. Institutions have positive and significant effect on economic growth as strong institutions secure fiscal system and motivate investors to invest within a country (Hassan, 2002; Kemal, 2003; Kang, 2015).…”

“…Institutions have a positive and significant impact on inclusive growth. Institutions can significantly enhance the growth by supervising the activities of government and by ensuring a proper use of resources (Kang, 2015; Heshmati et al , 2014). Government expenditure has positive and statistically significant effects on inclusive growth but taxes have negative and insignificant impact on inclusive growth.…”

“…Kang (2015) advocated that a fair taxation system is vital to achieve inclusive growth that can be possible through a strong institutional framework. Fiscal policy can contribute to inclusive growth directly by making expenditures on programs that benefit the poor and indirectly by redistributing income through an efficient system of taxes.…”

“…Economic institutions along with political institutions encourage growth by creating restrictions on power holders that ensure equal distributions of assets and resources. Institutions are closely related to working of fiscal policy (Kang, 2015; Chong and Gradstein, 2004; Bird and Vazquez, 2008). All these studies suggested that strong institutions are needed to implement fiscal policy to achieve the goals of inclusive growth.…”

Analysis of the Effects of Economic Growth, Investment, Regional Taxes, and Capital Expenditure Toward the Income Disparity in Indonesia (2007-2013)

“…The result was that economic growth negatively affected poverty but positively influenced the income disparity. Meanwhile, Kang (2015) found that economic growth correlated negatively toward income disparity. Similar results were obtained by with research of Latin American countries that showed that economic growth negatively affected the income disparity.…”