Inequality of Opportunity, Inequality of Income and Economic Growth

We posit that the relationship between income inequality and economic growth ismediated by the level of equality of opportunity, which we identify with intergenerationalmobility. In economies characterized by intergenerational rigidities, an increase in incomeinequality has persistent effects-for example by hindering human capital accumulation-thereby retarding future growth disproportionately. We use several recently developedinternationally comparable measures of intergenerational mobility to confirm that thenegative impact of income inequality on growth is higher the lower is intergenerationalmobility. Our results suggest that omitting intergenerational mobility leads tomisspecification, shedding light on why the empirical literature on income inequality andgrowth has been so inconclusive