Table Of ContentSpringerBriefs in Economics
Giuseppe Arbia
Income Inequality,
Redistribution and
Economic Growth
Statistical Measures and
Empirical Evidences
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Giuseppe Arbia
Income Inequality,
Redistribution and Economic
Growth
Statistical Measures and Empirical Evidences
Giuseppe Arbia
Catholic University of the Sacred Heart
Rome, Italy
ISSN 2191-5504 ISSN 2191-5512 (electronic)
SpringerBriefs in Economics
ISBN 978-3-031-24850-4 ISBN 978-3-031-24851-1 (eBook)
https://doi.org/10.1007/978-3-031-24851-1
Translation from the Italian language edition: “Diseguaglianza, redistribuzione e crescita” by Giuseppe
Arbia, © The author 2017. Published by Vita e Pensiero. All Rights Reserved.
© The Author(s), under exclusive license to Springer Nature Switzerland AG 2023
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A few observation and much reasoning
lead to error; many observations
and a little reasoning lead to truth
Alexis Carrel
To the memory of my friend Stefano Fachin
A Forward By Mohammad Hashem Pesaran
Professor Giuseppe Arbia has produced a highly readable pamphlet on one of the
most complex and important problems of our age: How to achieve economic growth
with a socially acceptable equitable income distribution. It is generally acknowl-
edged that economic growth is essential for reducing poverty and improving the
quality of life, particularly in developing countries. But how can we ensure that tech-
nological advances, which are the primary engine of growth, do not lead to increased
income and wealth disparities in society. Can this be achieved without discouraging
innovation and technological progress?
Professor Arbia provides a lucid account of the different forces that govern the
relationship between income inequality and economic growth, and the role played
by redistributive policies in striking a balance between entrepreneurship and the
incentive to innovate and an equitable distribution of income and wealth across the
different segments of society. Two economies with the same average rate of output
growth could have very different outcomes for poverty and income distribution.
Many of the factors behind these differences are discussed and then elaborated later
in the book. As emphasized by Professor Arbia, there is no simple relationship
between output growth and economic inequality. They could be driven by other
common factors such as wars, natural disasters and health pandemics. All such shocks
invariably affect output growth adversely but are likely to have positive as well as
negative long run impacts on inequality. The same also applies to policy interventions.
Not all growth-inducing policies lead to poverty reduction and better employment
and job opportunities for the poor.
Professor Arbia begins with an overview of the philosophical and political dimen-
sions of inequality with particular emphasis on economic inequality. He takes us
on a journey from Adam Smith, Jean Jacques Rousseau and Friedrich Nietzsche
to more recent accounts by Norberto Bobbio, Joseph Stiglitz and Mankiw. Chal-
lenges involved in measuring inequality are discussed eloquently by reviewing the
work of Gini, Dalton, Sen and Atkinson. Using the Gini coefficient, he reviews the
empirical evidence on trends in income inequality across advanced (OECD) coun-
tries and a number of developing and emerging economies. He documents the wide
differences that exist in income inequality even if we confine ourselves to European
ix
x AForwardByMohammadHashemPesaran
countries. Professor Arbia is quite candid about how difficult it is to explain the
differences observed between the values of Gini coefficient obtained for Slovenia,
Czech Republic and Norway (0.24–0.27) at the low end, and the values obtained for
Spain, Latvia and United Kingdom (0.34–0.36) at the high end. These differences
are much more pronounced once we also consider countries in Africa and South
America.
The evidence provided by Prof. Arbia for output growth is equally diverse giving
little support for the per capita output convergence predicted in the 1980’s by Robert
Barro and a number of other neoclassical empirical economists. Similarly, Professor
Arbia finds little evidence in favour of Kuzent’s curve, and the concept of the trickle-
down hypothesis popularized during the 1970’s and then revived in the U.S. under
President Ragan. This leads Professor Arbia naturally to redistributive polices and
their short-term and long-term effects on economic growth and inequality, whilst at
the same time acknowledging the difficulty of disentangling cause and effect in the
relationship between growth and inequality.
Professor Arbia’s account reminded me of my own research on income distribu-
tion and growth in Iran. In the absence of reliable income data, I used household
expenditure surveys that to the regime’s dismay showed a marked upward trend in
the degree of economic inequality which was further accentuated by the maximal
growth policies adopted by the Shah, itself made possible by substantial rises in
oil revenues after the quadrupling of oil prices in 1973/74. See Pesaran (1976) and
Pesaran and Gahvary (1978). The rising income inequality was arguably a factor in
the February 1979 Revolution that followed, despite the high growth rates achieved
prior to the Revolution.
In short, Prof. Arbia has managed to produce a succinct and highly readable
account of the fundamental economic problems faced by advanced and developing
countries alike. It is informative and thought provoking, and provides the reader with
the historical background as well as the statistical evidence needed for an independent
assessment.
November 2022 Hashem Pesaran
University of Southern California
Los Angeles, USA
Trinity College
Cambridge, England
References
Pesaran, M. H. (1976). Income distribution and its major determinants in Iran. In J.A. Jacqs (ed),
Iran: Past, present and future, aspen institute for humanistic studies (pp. 267286).
Pesaran, M. H., & Gahvary, F. (1978). Growth and income distribution in Iran. In R. Stone & W.
Peterson (eds), Econometric contributions to public policy (pp. 231–248). Macmillan.
Preface to the English Edition
This book represents the translation of an essay of mine published in Italian in 20161
with three additions.
First, given the complexity of the topics discussed in the essay, in this English
edition I deemed it necessary to include a new Chap. 1 which constitutes a short
illustration of the plan of the book and that aims at introducing the reader to the
fascinating issues of economic inequality, of economic growth and to the intricate
mechanisms that link them.
Secondly, in the first edition of the book, the empirical part obviously focused on
Italian datasets and was dedicated to describing the national situation and the recent
trends of inequality and growth in the country. Furthermore, a substantial part of the
discussion was centred on the analysis of the possible policies aiming at reducing
inequality without negatively affecting growth in Italy with specific references to the
Italian fiscal system. In contrast, being directed to a more international audience, in
this English edition, I suppressed those parts, and I presented a more general picture
of growth and inequality worldwide leaving apart any comment on policies that are
more country-specific.
Thirdly, and more substantially, in the years following the publication of the
Italian version of this book, the world has been stroked by the Sars-Cov-2 pandemic,
which constituted a watershed in all fields of human life: inequality and growth are
not exceptions to this rule. Indeed, the shocking effects of the health emergency
produced a sharp increase in inequality and a devastating slowdown in economic
growth observed all over the world with only a few exceptions. Even if substantive
progresses have been made since then, when this book goes to the press, at the
end of the year 2022, we are still not entirely out of such an unprecedented health
emergency and certainly we are still suffering its economic consequences all over
the world. Further instability and economic uncertainty were introduced worldwide
by the geopolitical instability following the Ukrainian war that started in February
2022.
1 See Arbia (2016).
xi
