  Various papers demonstrate the importance of inequality, poverty and the size
of the middle class for economic growth. When explaining why these measures of
the income distribution are added to the growth regression, it is often
mentioned that poor people behave different which may translate to the economy
as a whole. However, simply adding explanatory variables does not reflect this
behavior. By a varying coefficient model we show that the returns to growth
differ a lot depending on poverty and inequality. Furthermore, we investigate
how these returns differ for the poorer and for the richer part of the
societies. We argue that the differences in the coefficients impede, on the one
hand, that the means coefficients are informative, and, on the other hand,
challenge the credibility of the economic interpretation. In short, we show
that, when estimating mean coefficients without accounting for poverty and
inequality, the estimation is likely to suffer from a serious endogeneity bias.
