Do Rising Top Incomes Spur Economic Growth? Evidence From OECD Countries Based on a Novel Identification Strategy

We investigate the causal relationship between the growth rate of top income shares and economic growth in 12 OECD economies for the period 1950-2010. To analyze patterns of short- and long-run causality, we build upon recent advances in structural-vector autoregressive modeling of non-Gaussian systems. This framework allows us to discriminate between rival transmission channels by means of dependence tests, since independent shocks are unique for a particular causation pattern. We consider the share of income accruing to the top 1 percent (T1), to the next 9 percent (T9), and to the top decile (T10). While structural models display considerable heterogeneity across countries, mean group and pooled results strongly favor a specific transmission pattern. In particular, T1 has a long-run positive impact on economic development. This result, which is also confirmed by identified impulse-response functions, is particularly evident for the post-1980 period.