An Empirical Investigation of the income share of the middle class

Abstract

The scientific evaluation of the relationship between growth, redistribution,
 and the income share of the middle class is still in its infancy. This article
 aims to investigate how the drivers of economic growth impinge on market
 income distribution and how the middle class has a role in deciding the level
 of redistribution. Our strategy is to dodge the reverse causality problem,
 stemming from the bi-directional relation between income distribution and
 growth, by exploiting the peculiar feature of different indicators of income
 dispersion focused on the middle income group. The findings reveal that
 market forces and redistributive policies are both pivotal in shaping the
 evolution of income dispersion and in particular the income share of the
 middle class, over the growth process. The ability of redistributive policies
 to counteract the ongoing increase in income inequality seems to depend
 not only on the political pressure exerted by an impoverishing median voter
 but also on the expansion of fiscal revenues after sustained Gross Domestic
 Product (GDP) growth.