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Income Inequality and Minimum Consumption: Implications for Growth
Specifically, when a large fraction of the population is below the threshold income necessary for subsistence, aggregate consumption is depressed. In low-income countries, high inequality of income retards consumption growth, whereas in high-income countries inequality may be neutral for growth. Cross-country regressions indicate a positive and significant relationship between the middle quintile share of income and aggregate consumption. In all cases analyzed, increasing income in the middle quintile increases consumption growth.