Economic growth, financial development, and income inequality the paper finds that financial development contributes to reducing inequality up to a point, but as financial development proceeds further, it contributes to greater inequality. This paper is perhaps 4 per cent empirical information and 95 per cent speculation, some of it possibly tainted by wishful thinking. This bachelor thesis gives an overview over brazils inequality and provides the economic theory and latest ndings about the relationship between inequality and economic growth. This effect diminishes as per capita gdp rises and may be positive for the richest countries. This paper examines that the relationship between economic growth and income inequality by using data for the period of 19952011 and 94 countries. This paper examines two closely related empirical hypotheses. However, the execution of that plan was delayed by us involvement in world war ii and kuznetss duties as the chief statistician at the war production board.
Section 2 trends in growth and income inequality across the oecd countries. The kuznets hypothesis suggests that inequality is low at a lower income level but later increases at higher income level with economic growth. For a recent classification identifying the noncommunist developed countries see united nations, yearbook of national accounts statistics, 1969, vol. It describes the finding that inequality first increases and then decreases.
However, the execution of that plan was delayed by us involvement in world war ii and kuznets s duties as the chief statistician at the war production board. Economic growth and income inequality simon kuznets the paper by kuznets can be found here. The role that income inequality plays in economic growth has also received quite a bit of attention in policy circles and the press recently. Income inequality and economic development in latin. The hypothesis states that, at the beginning of its. In a neoclassical growth framework with a typical politicaleconomy mechanism, this paper reexamines the relationship between the income inequality and economic growth by introducing government spending into the production function and the utility function. One of the major stylized facts about longrun processes of economic development is the kuznets curvethe inverseu shaped pattern of inequality. New international panel data with the first internally consistent time series for a large number of countries shows no evidence of a kuznets curve. Due to limitations of data he used an inequality measure of the ratio of income share of the richest 20 per cent of the population to the bottom 60 per cent of the population known as kuznets ratio. In an empirical part the paper shows with newer data that a signi cant inequality based kuznets curve exists for the case of brazil and that the level. The key problem facing researchers who studied the correlation between income inequality and economic growth in the years following the publication of kuznets paper was the lack of data on developing countries.
The kuznets curve and inequality economics johns hopkins. Noting increasing economic equality in three developed nations and using a theoretical economic model, kuznets hypothesized that economic development was associated with initial increasing economic inequality followed by decreasing economic inequality. If kuznets curve is correct, the relationship between gdp per. But in fact, the prize was awarded for his empirical work on economic growth. Scribd is the worlds largest social reading and publishing site. In a seminal paper, kuznets 1955 argued that as countries developed, income inequality. Economic growth, income inequality and environment. Simon kuznets put forward the hypothesis that relationship between per capita national income and the degree of inequality in income distribution may be of the form of invertedu. It implies that in each country group income inequality declines and then increases with the rise of gdp per capita following a quadratic trend. Many economists believe that kuznets received the 1971 nobel prize for his measurement in national income accounting, and certainly that was enough to merit the prize. For a discussion of the economic epoch concept see simon kuznets, modern economic growth. Simon kuznets is best known to the public for the kuznets curve, which describes the relationship between economic growth and inequality. Kuznets s invertedu hypothesis has been debated in the last few decades, and.
However, over time, such data began to emerge, and the opportunities to test kuznets findings became greater. The great rise of inequality let us start by examining the ongoing trends in income and wealth. Kuznets 1955 introduced the inverted ushaped kuznets curve that showed that in an economic system, at the initial level of low economic growth, income inequality is low and as growth occurs, income inequality increases till a threshold, after which, income inequality decreases with. Branko milanovic choose less inc jality as they grow richer. An altemative hypothesis to country income inequality. For instance, the world bank group has included among its key global objective for development the eradication of extreme poverty and boosting the incomes of the bottom 40% of developing countries. Apr 10, 2019 the middle income countries used in the data set are used as evidence for this claim as kuznets primarily used countries in latin america, which have had histories of high levels of economic inequality as compared to their counterparts in terms of similar economic development. Rate, structure, and spread, yale university press, new haven, conn. The middleincome countries used in the data set are used as evidence for this claim as kuznets primarily used countries in latin america, which have had histories of high levels of economic inequality as compared to their counterparts in terms of similar economic development. His study demonstrated that income inequality widens in the early phase of economic growth and narrows in the later stage of development. He finds that income inequality will limit the economic growth rates, given certain amounts of political power and expropriation benabou 1996. His prize was awarded for his earlier work with growth and the economys size. Second, income inequality declines at the matured stage of economic development. Economic growth rising inequality and rapid growth.
Gdp and population data 19692007 from 36 nations and regions, comprising the entire global economy and population, demonstrate a global. Does inequality in the distribution of income increase or decrease in the course of a countrys economic growth. Kuznets 1955 explored the historical evolution of income distribution and per capita output. Kuznetss plan to use national income measures to describe and explain the longterm economic trends of the industrial nations was formulated in the late 1930s. For example, benabou 1996 reversed the dependent and independent variables used in kuznets hypothesis, thereby testing the effect that inequality has on economic growth. Mar 30, 2018 how might inequality be affected by income growth. Income inequality refers to disparities in the distribution of income, that is, the gap between the rich and the poor in a country. The relationship between income inequality and economic development has popularly been characterized by the kuznets invertedu curve kuznets, 1955, which argued that income inequality tends to increase at an initial stage of development and then decrease as the economy develops. Kuznets hypothesis of income inequality income inequality and the level of economic development has a shape of u. Inequality and economic growth in bangladesha diversified. Kuznets s plan to use national income measures to describe and explain the longterm economic trends of the industrial nations was formulated in the late 1930s.
Does inequality in the distribution of income increase or decrease in the course of a. Kuiwai li, in redefining capitalism in global economic development, 2017. Impact of inequality on economic growth in this context, person and tabellini 1994 conducted a study on the relationship between inequality and growth in the case of 56 countries, nine of which are developed during the postwar period. We find a robust invertedu relationship between income inequality and political development, but not one between income inequality and economic development. The central theme of this paper is the character and causes of long. Economic growth and income inequality simon kuznets the.
The kuznets inverted ucurve hypothesis that posits the relationship between income and income inequality has met varying degrees of. The nobel laureate simon kuznets was a pioneer in the study of income inequality, writing in 1955. Using a sample of 80 countries from the 1980s, the author shows that two types of factors explain variations in income inequality. Kuznets inverted uhypothesis on income inequality economics. The thesis first analyzes the possibility of the kuznets curve in china rural area theoretically. In an empirical part the paper shows with newer data that a signi cant inequalitybased kuznets curve exists for the case of brazil and that the level. The relationship between economic growth and income. April 30, 1901 july 8, 1985 was an american economist and statistician who received the 1971 nobel memorial prize in economic sciences for his empirically founded interpretation of economic growth which has led to new and deepened. Summary data from developing economies indicate that the earlier phases of economic development tend to be characterized by increasing income inequality, as those engaged in the small but growing modern sector of the economy pull away from those still left in agriculture and other subsistence activities. The relationship between economic growth and income inequality. How simon kuznets codified modern economic growth chicago.
However in 2009, reflecting better economic performance in several developing and transition countries. Oct 08, 2014 equitable growth supports research and policy analysis on how trends in economic inequality and mobility and changes in the economy have affected the concentration of wealth, income, and earnings, and how these distributional shifts have affected the promise of economic security and opportunity. In this scenario, the poo rest goups share of total income would decrease as economic g rowth takes. Subsequently, the kuznets curve has been applied to the evolution of pollution levels of countries through their development process. Equitable growth supports research and policy analysis on how trends in economic inequality and mobility and changes in the economy have affected the concentration of wealth, income, and earnings, and how these distributional shifts have affected the promise of. Unemployment rate and educational attainment statistically significantly and positively. A russianamerican economist and statistician who won the 1971 nobel memorial prize in economic sciences for his research on economic growth.
Income inequality and economic growth munich personal repec. The concept of kuznets hypothesis suggests that as economic growth occurs, income inequality first increase and than decline after a certain turning point which we may have the scope to investigate the stage of economic development and the relationship between inequality and economic. The starting point for the theoretical literature on the relationship between growth and income inequality is the kuznets hypothesis. Economic growth, financial development, and income inequality. Income inequality and economic growththe kuznets curve. The environmental kuznets curve ekc is a hypothesized relationship between environmental quality and economic development. In 1980, the per capita income of the 15 richest nations was 44 times that of the 15 poorest, by 2000, that multiple had increased to 62.
The kuznets curve simon kuznets 1955, was first used to describe the progression of economic inequality as countries develop. In this work kuznets identified a new economic erawhich he called modern economic growththat began in northwestern europe in the last half. Lewis and kuznets on economic growth and income inequality. Inequality, growth, kuznets curve, gini coefficient. Studies of income inequality and economic growth have been well conducted by many other scholars and organizations. Ii, international tables new york, 1970, notes to table 5, p.
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