Chapter 5
CONVERGENCE 1: INCOME INEQUALITY AND ECONOMIC GROWTH

Chapter 5 deals with the evolution of income inequality compared to the growth rate of state average income. As mentioned in Chapter 3, state average income refers to the BEA series of per household personal income by state adjusted to Piketty and Saez’s series, and income inequality is measured with various ratios of the top percentile.

This chapter aims at assessing the sensitivity of the results to two different approaches. The first one is borrowed from the fascinating work of Kuznets (1958); the second one is taken from the famous publication of Barro and Sala-i-Martin (1995). Therefore, this chapter starts with a Kuznets-type analysis based on the ranking of states according to their respective initial average income (BEA data). The analysis continues with a formal econometric analysis based on the generalized method of moments to address the issue of the β convergence. Next, the concept of the σ convergence is applied to both average and top incomes, using different measures of their respective dispersion across states.