The short and long-term effect of income inequality on economic performance

Abstract: There is a relationship between income inequality and economic performance. This relationship is based on different channels between income inequality and economic performance. These channels are based on incentives, investment opportunities, policy, and taxation. The effects of the different channels are noticeable after different time-periods. This paper tested if income inequality affects economic performance and if there is a difference between the short-term and long-term effect. This paper found that income inequality has a positive effect on economic performance in, both, the short-term and long-term.