Inequality and growth: What does the transition economy data say?

Despite an extensive literature on inequality and growth, there remains considerable disagreement on the effect of inequality on subsequent growth. This paper attempts to empirically evaluate that relationship with data from the transition economies of Central and Eastern Europe and the Commonwealth of Independent States. One attractive feature of this group of countries is that their starting points were remarkably similar. Yet, they subsequently have experienced substantial divergence in growth rates and income inequality. Hence, this data set offers considerable advantages for investigating the inequality and growth relationship. Since the existing literature has virtually ignored transition economies, the paper fills an important gap on the theme. Our estimations indicate that the effect of inequality on growth is negative, strong, and rather robust. Journal of Comparative Economics 35 (1) (2007) 35-56.