Higher Income Inequality

Decent Essays

In 1950’s decades, the prevailing view was that the propensity to save of the rich is more than the poor. Thus the higher income inequality leads to higher savings, hence leads to increase the rate of investment and growth (see Kaldor (1957), Kuznets (1955)). More recently, Tabellini and Persson(1994) argue that inequality hurts growth through the median voter who enacts redistributive taxes. By contrast, St. Paul and Verdier (1993) show that redistributive taxes can boost growth if they are transferred to education or public goods. Another study presented by Barro (2000) assesses the relationship between Income Inequality and growth in a panel by using annual data set from 1965-1995. He studies the interaction of the Gini index and the initial

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