Is income inequality harmful for regional growth? Evidence from the European union

This article examines the relationship between income inequality and economic growth in the regions of several European Union countries over the period 1993-2002, using the information provided by the European Community Household Panel. Taking into consideration the relevance of spatial effects in this context, different versions of a spatial econometric model are estimated. The results indicate that the degree of income dispersion is negatively associated with regional growth. This finding is in fact robust to various alternative specifications including a number of additional explanatory variables, such as initial per capita GDP, the sectoral composition of economic activity, human capital stock, population density and market potential. Furthermore, the observed negative correlation between income inequality and economic performance does not depend on the specific measure used to quantify the degree of income dispersion.