Revisiting the Relationship Between Income, Inequality and Economic Growth

Abstract

Most models that explore the relationship between income inequality and economic growth postulate the existence of a negative correlation between the two operating through diverse channels. Parallel to the theoretical models, a number of empirical studies have attempted to appraise this relationship. A broad consensus had built validating the existence of such negative correlation until some panel data studies tended to show the opposite result. The review of the ensuing debate as well as the empirical estimation undertook in this paper show that estimates may not be as robust as believed. It is suggested that country case studies may be a way to explore this issue more appropriately.