Income Inequality and Economic Growth: A Meta-Analytic Approach

TL;DR

This meta-analysis finds a small but significant negative effect of income inequality on economic growth, with heterogeneity influenced by measurement, country income level, and research methods, highlighting complex underlying dynamics.

Contribution

It systematically synthesizes evidence from 1994-2025 studies, revealing sources of heterogeneity and methodological influences on the inequality-growth relationship.

Findings

Income inequality has a small but significant negative impact on growth.

Heterogeneity is influenced by measurement, country income level, and research design.

Methodological choices significantly affect reported effect sizes.

Abstract

The empirical literature on the relationship between income inequality and economic growth has produced highly heterogeneous and often conflicting results. This paper investigates the sources of this heterogeneity using a meta-analytic approach that systematically combines and analyzes evidence from relevant studies published between 1994 and 2025. We find an economically small but statistically significant negative average effect of income inequality on subsequent economic growth, together with strong evidence of substantial heterogeneity and selective publication based on statistical significance, but no evidence of systematic directional bias. To explain the observed heterogeneity, we estimate a meta-regression. The results indicate that both real-world characteristics and research design choices shape reported effect sizes. In particular, inequality measured net of taxes and transfers is associated with more negative growth effects, and the adverse impact of inequality is weaker - or even reversed - in high-income economies relative to developing countries. Methodological choices also matter: cross-sectional studies tend to report more negative estimates, while fixed-effects, instrumental-variable, and GMM estimators are associated with more positive estimates in panel settings.