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ECONOMIC GROWTH AND INCOME INEQUALITY IN BRAZIL: ANALIZING THE COMPARABLE MINIMUM AREAS
Leonardo Alves Rangel* Joaquim Andrade** Jose Angelo Divino***
ABSTRACT This paper deals with economic growth and income inequality. It analyzes two possible forms of relationship between income inequality and economic growth: linear relation or inverted-U shape. Using data for Minimum Comparable Areas (form of aggregation of cities) for 1991 and per capita income growth from 1991 to 2000, we estimate several regressions. The objective is to present the diverse forms for controlling for the relation between inequality and growth. Some socio-economics variables had been used as controls. The Akaike information criterion shows that the inverted-U is the best functional form to represent the relation between inequality and economic growth. KEYWORDS Economic growth; Income inequality; Minimum comparable areas; Inverted-U shape. JEL Classification: O15 e O4.
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Brazilian Institute for Applied Economic Research and University of Brasilia. Department of Economics, University of Brasilia. ** Department of Economics, Catholic University of Brasilia.
1. INTRODUCTION It is not recent the growing interest of academic researchers in the study of the relationship between growth and inequality. To know why a country grows more than another and why some regions are more developed than others vis a vis their level of inequalities is on the basis of the current research. The main concern of this paper is to analyze the relationship between inequality and economic growth as well as the nature of this relationship. Kuznets in his seminal work proposed a non linear relationship that mimics an inverted U shape. This can be understood from an historical point of view. Economies tend to diversify and increase inequality in the middle of the road and reach a better income distribution when they reach the high development level. Several models try to understand the main factors...