Does Economic Development Require More Income Inequality? – Is the Kuznets Curve Still Valid?

Abstract

In recent years, one important policy concern among researchers and policy makers is the possible impact of income inequality on economic development, especially on the rate of economic growth. The relationship between these two economic variables is very important, particularly in less developed countries, because high income inequality is a common characteristic in less developed countries. Therefore, a link between income inequality and economic growth could be adopted for clear understanding about this relation. This link will help to take appropriate economic policies to deal with income inequality, and to enhance economic growth in less developed countries. The evidence reviewed in this paper has not found any systematic relations between income inequality and economic growth. There is a wide variation among countries, based on their levels of development, on how inequality effects future growth. Empirical studies also show that Kuznets hypothesis is not valid for many countries.

Keywords: Income inequality, Economic growth, Kuznets hypothesis.