INCOME INEQUALITY AND ECONOMIC GROWTH: AN EMPIRICAL INVESTIGATION IN MEDITERRANEAN COUNTRIES

This article analyses the relationship between inequality and economic growth in Mediterranean countries over the period 1995−2012. We pursue a twofold objective. From a methodological point of view, the article compares empirical findings based on different sources of data on income inequality. This analysis supports the view that the measurement errors on the index of income inequality represents an essential drawback in this literature. From a public policy perspective, for Mediterranean counties: (i) we find that income inequality may Granger causes economic growth while we can unambiguously reject the hypothesis that Granger causality runs to the other way; (ii) we find an inverted U-shaped curve exists between income inequality and growth rates of GDP per capita. That is inequality is detrimental for growth only if it is relatively high while, when the size of income disparities is low redistributive policy may influence positively the economic growth.