Inequality Granger-causes growth

So say Andrews, Jencks and Leigh. For what that’s worth.

4 Responses to “Inequality Granger-causes growth”

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  • Scott Sumner says:

    I’ve never understood why people find Granger causality to be interesting. Isn’t it likely that stock market booms lead to more inequality, as capital gains are skewed toward the rich. Would anyone be surprised to learn that higher stock prices predict faster growth in the following year? Would anyone then assume causation from stocks to growth? I haven’t read the paper, so perhaps they control for that problem.

  • pushmedia1 says:

    Yeah, they use Piketty and Saez’ top-income tax data, so this could be an issue. I think they only control for education and tax rates. I think the idea with Granger causality (btw, they never use that term in the paper) is there is a sort of argument from exhaustion: if you control for everything you can think of and you still get granger causation then, well, it must be real causation.

  • Scott Sumner says:

    Pushmedia1, Yes, but people need to think about what they are assuming. It’s obvious that stock prices predict growth. If stock booms are associated with greater measured income equality, that will also predict growth.

    It’s not a question of whether people went through the motions and did everything the right, way, the question is whether the hypothesis being tested actually implies any causation.