Institutionalist versus neoclassical view on income distribution and economic progress: The OECD panel evidence

Abstract

Institutionalist and neoclassical views on income distribution are characterized by different assumptions about the inequality - savings - economic progress relationship. By questioning the neoclassical arguments, the paper promotes the attitude that economic progress results not from savings as “abstain from current consumption” but from society’s ability to continuously develop technological arts and crafts. Empirical analysis of panel data from OECD countries using a dynamic GMM model shows a positive relationship between income concentration and aggregate savings, but there is no robust evidence of a positive relationship between aggregate savings and economic progress. Furthermore, we find robust evidence that technology and human capital are the key determinants of economic progress, implying that accumulation of physical and human capital is more important for economic progress than accumulation of financial capital.

Keywords

• income inequality
• savings
• economic progress
• old institutionalism
• neoclassical economics