The Puzzle between Economic Growth and Income Inequality

University essay from Högskolan i Jönköping/IHH, Economics, Finance and Statistics; Högskolan i Jönköping/IHH, Economics, Finance and Statistics

Abstract:

The purpose of this paper is to investigate the correlation between income inequality and economic growth in a cross-section of 90 countries from 2002 to 2006. The controversial Kuznets Hypothesis, the economic model that hypothesizes the relationship between inequality and per capita income is an inverted U-shaped curve, is scrutinized and investigated to consider its viability and accuracy. A multiple linear regression model is estimated and the viability of the regression model is supported by several statistical tests. Based on the estimated model, a negative correlation between growth and inequality has been found. 

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