Angus Deaton recounts a paper he wrote about this some time ago. Answer: No.
In 2003, Darren Lubotsky and I published a paper in the journal Social Science and Medicine. Our topic was whether income inequality is a health risk to people who live in particularly unequal cities or states. The idea is that income inequality is like a toxic pollution, harming everyone who lives with it. My own view, then and now, is that there is no such effect, though I also believe that the extreme income inequality that we see in the U.S. today is a threat to public health, but through quite different (essentially political) mechanisms.
Our analysis showed that the correlation between higher mortality and income inequality arises from a failure to control for the racial composition of the population in each city or state. In cities (states) with a larger fraction of blacks, the difference between the average incomes of blacks and whites is larger, perhaps because employers do not regard blacks and whites as fully substitutable in production. This drives a link from fraction black to income inequality. But blacks also have worse health than whites ― in part because of an apartheid healthcare system that treats blacks less well than whites ― so that the fraction black is also linked to overall mortality. Those two links induce a strong positive correlation between income inequality and mortality. That this correlation is spurious is documented by its vanishing when we control for fraction black, by the fact that mortality rates of blacks and whites separately are uncorrelated with income inequality, and by the fact that income inequality and mortality are uncorrelated across space in other settings where race is not a salient factor.
HT: Greg Mankiw.
There is also an interesting discussion of how Deaton’s study was attacked by the UMASS crowd — similar to the more recent attack on Reinhart and Rogoff.