Financial development boosts economic growth have been shown by the increasing number of scholars, however whether the financial sector development could benefits the income distribution is still controversial. Under this question, this essay try to use statistically method to explore the relationship between income inequality and financial sector development.
This essay’s results present that inequality decreases as financial development. Although there are some weak evidence suggests that there is an inverted U shaped linkage between income distribution and financial development.
2.A review of theoretical discussion
2.1 Earlier analysis
Schumpeter (1934) points that finance have many functions which are significant in economic growth and other areas development, for example, risk management, project evaluation, saving increase. The connection between the operation of the financial sector and economic growth has been one of the most heavily researched topics in development economics. There are convincing arguments that financial sector development plays a pivotal role in facilitating economic growth. In the period of mercantilism, mercantilists think that currency is the treasure, therefore the increase of currency is equal to the economic growth. In 1912 joseph alois schumpeter, a highly acclaimed economist, published a book entitled the theory of economic development that assessed that the impact of financial variables, for instance currency, interests, credit and loan,
In William Domhoff’s article, Wealth, Income, and Power, he examines wealth distribution in the United States, specifically financial inequality. He concludes that the wealthiest 10% of the United States effectively owns America, and that this is due in large part to an increase in unequal distribution of wealth between 1983 and 2004. Domhoff also states that the unequal wealth distribution is due in large part to tax cuts for the wealthy and the defeat of labor unions. Most of Domhoff’s information is accurate and includes strong, valid arguments and statements. However, there is room for improvement when identifying the subject of what is causing the inequality.
From 1938-1969, in America was in a period called the great compression, a time where the difference between the richest and poorest Americans was very small and economic growth was explosive. Due to past and current economic policies and events, income inequality has exploded in America, which is why in 2015 America had the highest level of wealth inequality in the world at 80.56 gini[1] . In the future this inequality will slow down economic growth, increase debt for middle income Americans, make America less democratic, and reduce economic mobility. This problem, however, does have solutions and this paper will lay out some of the solutions and the effect they will have on the economy, but first I will explain the history of income inequality in the US.
Wealth inequality in the United States has grown tremendously since 1970. The United States continuously reveals higher rates of inequality as a result of perpetual support for free market capitalism. The high rates of wealth inequality cause the growing financial crisis to persist, lower socio-economic mobility, increase national poverty, and have adverse effects on health and well being.
Presently the United State 's income gap between the middle class and wealthy is undoubtedly significant. Some say that income inequality is
“Growing Apart: The Evolution of Income vs. Wealth Inequality” written by Michael Cragg and Rand Ghayad is an article about how wealth distribution in America has dramatically changed within the last three decades and how it has become one of the most political and economic trends in this nation. The main priority of the article is that it talked about how the wealth and financial statues in the United States has favored in the upper class and has opposed the middle and lower class within the last three decades. The first subdivision talked about how income inequality and wealth inequality are both different and how wealth inequality has a bigger negativity on the United States economic growth. The second subdivision talked about how if the
The sociological views of functionalist and conflict theorist on stratification and economic inequality have had profound impact on the current economic discussion. In the past, economist have argued that wealth inequality is essential for “economic strength and social stability. [5] That wealth inequality “is needed to reward hard work, talent and innovation”. [6] However, in recent years, many economist have come to the conclusion that extreme wealth inequality, can lead to economic stagnation and social instability. What degree of
To me, this is immensely troubling. I believe opportunity should be based on ability rather than one’s starting point. Wealth inequality poses a serious threat to future generations like mine, who, in pursuit of the American Dream, will find upward mobility nearly impossible. Disenfranchised, desire for innovation and growth will cease. Fearful of the dangerous repercussions, I examined how to reduce wealth inequality in an AP U.S. History paper. I found that Americans lack financial literacy, and this in turn exacerbates existing inequality.
Income inequality is a controversial topic discussed throughout the world. Many feel strongly that income inequality can hinder Americans or benefit them. Although some believe that income inequality helps Americans, it truly hinders them. Throughout the course of 30 years people have been unsatisfied with their income (Pettinger, 2011). Just about everything that is the result of income inequality can be thought of as a hindrance. Regarding Americans and their money, many various disadvantages can be directly related to income inequality.
Wealth inequality is rooted in the American idea of capitalism because capitalism is creating a name for yourself and making the most money you can, capitalism also includes the fact you can do whatever you want with the money you acquired. Krugman talks about how capitalism created wealth inequality when he says, “…‘capitalism,' in which the commanding heights of the economy are controlled not by talented individuals but by family dynasties…” (Krugman). If generations ago your family was one of the first families in America and became exceedingly rich off of trade or land you probably still have a large majority of their money. Because we live in a capitalistic world people can choose to spend every single penny they have, or give their money
Income inequality has been a major concern around the world, and it mainly links to how economic metrics are distributed among individuals in a country. Economists generally categorise these metrics in wealth, income and consumption. Wilkinson and Picket (2009) showed in their studies that inequality has drawbacks that lead to social problems. This is because income inequality and wealth concentration can hinder or delay long term growth. In 2011, International Monetary Fund economists showed that less income inequality increased the duration of countries’ economic growth spells more than free trade, low government corruption, foreign investment or low foreign debt (Berg and Ostry, 2011).
Also income is less concentrated than wealth. Also the Federal Reserve’s Survey of Consumer Finances (SCF) is the main source to obtain information related the allocation of wealth for household. The SCF income distribution received approximately a third of all income in 2013 data also shows that the top 3 percent of the, while the top 3 percent of the wealth distribution held 54 percent of all wealth (Stone, et al). Similarly, the top 10 percent of the income distribution received a little less than half of all income, while the top 10 percent of the wealth distribution held three-quarters of all wealth. In fact, the average wealth has amplified over the past 50 years, but it has not developed equally for all groups
“Income inequality in the United States has soared to the highest levels since the Great Depression, and the recession has done little to reverse the trend” (Lowrey). Economic inequality has sparked many voices, some which have even been grappled in literature. This issue is not only effecting the people who face these barriers, but as well as the United State’s financial system, which has made economic expansion difficult to accomplish. By executing simple actions, the imbalanced gap can be narrowed. Such actions include raising the minimum wage or increasing taxes on the wealthy.
Over the last decade, income inequality has become one of the most important issues in the U.S. and a subject of a lot of debate. There is a prevalent idea in the society that the wealth inequality in United States is currently at the highest level in the history after steadily raising for a number of decades. The financial crisis is said to have contributed to this significant gap between the top 1% and everybody else. People view it as an inherently negative thing, and fight hard to promote the equality and income redistribution. This paper examines the causes of inequality; the relationship between wealth inequality and economic growth and the hypothesis on how policy
Income redistribution refers to the concept of transferring income from the wealthy individuals to the less wealthy individuals through social mechanisms such as monetary policies, charity, welfare, land reforms, and taxation among others. Income redistribution affects the entire economy rather than selected groups of individuals. The concept of income redistribution emanates from the existence of income inequalities within an economy. Income inequality depicts a gap between the highest and the lowest income earners in an economy (Tullock 13). Income inequality is sometimes considered appropriate in societies since it acts as an incentive in free market economies, whereby in the absence of inequality, elements of economic stagnation and lack of enterprise would emerge. Conversely, income inequality is criticized on the basis of introducing contributing towards the development of key problems in the society, including progression of poverty levels. This paper seeks to explore the concept of income redistribution and its key pros and cons.
Economic inequality has been a long-debated issue within the social sciences. The origin of the most recent debate has roots in Karl Marx’s works during the 19th century. Since Marx, the equality of distribution has become a heated topic in a wide range of social science from economic to social and political. Marx saw the growing inequality and poor working conditions in the beginning of the 19th century as a never-ending process of infinite accumulation of capital. This literature subsided due to the improvement of working conditions