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date: 23 January 2021

Abstract and Keywords

This article reveals a complex and multi-dimensional effect of inequality on growth. The theoretical literature suggests that inequality can both facilitate and retard growth. Furthermore, most of the positive mechanisms can be linked to inequality at the top end of the distribution while many of the detrimental effects can be traced to bottom-end inequality, or to high overall inequality. The ultimate effect of inequality on the economy will therefore depend on the relative strengths of the positive and negative influences that are identified. In theory, this balance will be affected by the overall level of inequality in a country, together with the strength of its institutions. Additionally, different levels of inequality may be conducive to growth at different levels of development.

Keywords: growth, inequality, institutions, positive influences, negative influences

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