The short-run relationship between inequality and growth: evidence from OECD regions during the Great Recession

Abstract

This paper provides evidence on the relationship between income inequality and economic growth in Organisation for Economic Co-operation and Development (OECD) regions during the decade 2003-13. It combines household survey data and macroeconomic databases, covering over 200 comparable regions in 15 OECD countries. The econometric results, based on two alternative sets of instruments, highlight a general negative association between inequalities and economic growth since the start of the economic crisis. This relationship is sensitive to the type of urban structure. Higher inequalities seem to be more detrimental for growth in regions characterized by medium to large-sized cities, while regions characterized by small cities and rural areas are less affected.