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This paper challenges the current belief that income inequality has a negative relationship with economic growth. It uses an improved data set on income inequality which not only reduces measurement error, but also allows estimation via a panel technique. Panel estimation makes it possible to control for time-invariant country-specific effects, therefore eliminating a potential source of omitted-variable bias. Results suggest that in the short and medium term, an increase in a country's leveldoi:10.1257/aer.90.4.869 fatcat:st43tdaxnneddkb7whdodsdklq