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IS THERE A “DOUBLE BONUS” FROM REDUCING INEQUALITY?

Authors

  • AKIHITO ASANO

    1. Asano: Faculty of Liberal Arts, Sophia University, 7-1 Kioi-cho, Chiyoda-ku, Tokyo 102-8554, Japan. Phone +81-3-3238-4102, Fax +81-3-3238-4076, E-mail aki.asano@sophia.ac.jp
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    • The author is grateful to Steve Dowrick and Ben Smith for their comments, discussion, and encouragement. The author would also like to thank Phong Ngo, Dean Corbae (coeditor), and two anonymous referees for valuable suggestions on earlier drafts. The usual disclaimer applies.


Abstract

We study the effect of inequality on growth in an overlapping generations (OLG) model where inequality affects growth through accumulation of human capital and endogenous fertility. In contrast to much of the existing literature, we argue that the effect of inequality on growth might be non-monotonic. Our model suggests that the effect depends on the demographic stage of development: inequality impedes growth in low-fertility (high human capital) economies, but enhances growth in high-fertility (low human capital) economies. Our finding casts doubt on a “double bonus” from reducing inequality in developing countries which are typically characterized by high fertility. (JEL O40, J13, O15)

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