Income Disparity Effects On Economy

Alesina and rodrick 1994 in their pioneer work found a statistically significant negative relation between the income inequality and economic growth.

Income disparity effects on economy. The cogent reason which they explained is a sacrifice between the positive aspects of income redistribution and the deleterious effects of huge taxes on capital engendering incongruous economic. Economic inequality generally refers to the disparity of wealth or income between different groups or within a society. The relationship between aggregate output and income inequality is central in macroeconomics. Economic inequality is a broad term that encapsulates the gap between the income and wealth amassed by different groups in a society.

Nonetheless this issue is still far from resolved and as explained in this article the answer to the question of how unequal household income affects a country s growth is still not clear both from a theoretical and also empirical perspective. Econometric analysis suggests that income inequality has a negative and statistically significant impact on subsequent growth. We have rather solid empirical evidence showing that income inequality and gross domestic product. This column argues that greater income inequality raises the economic growth of poor countries and decreases the growth of high and middle income countries.

Above all we should be able to predict the effects of income inequality on economic growth which was the topic of my doctoral dissertation theoretical research shows that this effect can go in both directions that is from inequality to growth and vice versa see chapter 1 4 for more details. Often characterized by the aphorism the rich get richer while the poor get poorer the phrase often refers more specifically to the gap in income or assets between the poorest and richest segments of an individual. Therefore the question arises if inequality in distribution of income or rewards for the services is reduced it may adversely affect the incentives to work hard and invest and as a result the production of goods and services may decline that is gdp or economic growth will be hurt. The relationship between economic growth and inequality has been studied by economists for more than a century.

Human capital accumulation is an important channel through which income inequality affects growth. In particular what matters most is the gap between low income households and the rest. Americans reference it when questioning why ceos earn so much.