Abstract
The East Asian experience shows that fast economic growth could be achieved along with narrowing income inequality, especially for the case of Japan, Korea and Chinese Taiwan. This chapter tries to explore the growth–inequality nexus in China by argues that the conventional approach of data averaging is problematic. It introduces the polynomial inverse lag (PIL) framework so that the impacts of inequality on investment, education, and ultimately on growth can be measured at precisely defined time lags. Combining PIL with simultaneous systems of equations, we analyze the growth–inequality relationship in postreform China, finding that this relationship is nonlinear and is negative irrespective of time horizons.
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