The Relationship Between Income Inequality and Income Growth in Swedish Municipalities.

Sammanfattning: Economic inequality and its effects on income growth is a topic that has been researched extensively. Previous studies with the aim to determine the impact of income inequality on economic growth have functioned more as pointers than solid facts. This study contributes to the continued discussion within the growth economy by exploring the relationship between the growth rate of average income and income inequality using panel data of Swedish municipalities from 2000-2020. Produced independently, this study uses the Gini coefficient as a tool to measure the income inequality among all 290 municipalities in Sweden. The result from the panel estimation shows no clear effect on the impact of income inequalities on income growth. However, when endogeneity is considered a 2SLS regression with the age structure as an instrument variable is used, the estimation shows that income inequality at local level has a positive association to growth of average income. Coherent with earlier studies of income inequality among Swedish municipalities, the result implies that as income inequality increases between income groups, average municipality experiences increase in growth of average income. Furthermore, this disposition compares the estimated results to a system GMM estimation.