Concerning this purpose, the primary goal of macroeconomic stabilisation policies is to achieve stable economic growth, especially as it is also a critical factor in reducing global poverty. As long as policymakers fail to achieve their sustainable economic growth goals, they reconsider their decisions towards these goals (Mijiyawa, 2008; Piece, 2012). On the other hand, it is claimed that policies aimed at reducing income inequality promote long-term sustainable growth effectively (Berg & Ostry, 2011; Ostry et al., 2014). The hypothesis that income inequality increases in the early stages of economic development while it decreases in later stages has been tested from different angles in many studies. The basic idea of the model based on the Benhabib and Rustichini (1996), Alesina and Perotti (1996), Alesina et al. (1996) studies is that increasing income africa gold capital investment inequality will initially increase social unrest.

• The recognition of thesechannels, on which some of you have done pioneering work, forces us tothink about the broader implications of, and necessary preconditions for,sound economic policies.
• According to this theory, which is analysed especially through the investments made in human capital, it will be inevitable that economic growth will be negatively affected since human capital is the basis for economic growth.
• These results indicate that the income level of countries is essential to interpret the relationship between variables.
• Therefore, the increase in the fertility rate in low-income countries damages to economic growth more than in UHC.

Literature Review

Contrary to expectations, it is observed that the effect of inequality on the political stability index is positive in all estimations. The effect of inequality on the redistribution variable is insignificant except for the pooled OLS estimate. These results indicate that inequality in low-income countries does not significantly affect redistribution as https://deriv.com/ theoretically stated (Le & Nguyen, 2019; Odedokun & Round, 2004). It can be argued that low-income countries do not have the level of democracy to support the median voter theory, so the results are not surprising.

Method and Dataset

On the other hand, as stated above, since the complexity of the relations may also depend on the development level of the countries, these conditions should be taken into consideration. There is growing recognition that an excessively unequal income distributionmay itself be detrimental to sustainable growth. Couldn’t cost-effectiveprograms aimed at reducing excessive income and consumption inequality,in the context of macroeconomic stability and allocative efficiency, promote,not deter, sustainable economic growth? I will mention three well-recognizedchannels that provide insights into how economic policies are intertwinedwith social issues and the political process.

1 The Effect of Income Inequality on the Channel Variables

While low-income families have more children and low investment in education, the opposite will happen for affluent families. Therefore, it is stated that in countries with high-income inequality, increasing fertility rates will reduce economic growth (Galor & Weil, 1996; Galor & Zang, 1997; Kremer & Chen, 2002; De La Croix and Doepke, 2003). A fair and sustainable economic and social welfare is one of https://standardbank.co.za/ the goals of macroeconomic policies.

The Relationship Between Income Inequality and Economic Growth: Are Transmission Channels Effective?

This study aims to determine whether the effect of income inequality on economic growth is realised through transmission channels theoretically expressed. This relationship is examined for 143 countries and the periods between 1980 and 2017 through positive and negative channels. These countries are divided into two groups by considering https://www.easyequities.co.za/ their income levels and they are analysed with panel data econometric techniques. Although the findings provide evidence that high inequality adversely affects economic growth, it can be stated that this inference cannot be generalized when countries’ income levels are taken into account.

The fact that the channel is not valid in these countries may be due to the fact that human capital, contrary to theory, does not increase economic growth, such as the Ciegis and Dilius (2019) study. Also, the results here differ from LLMC shows that the validity of this channel varies according to the income level of the countries, and the evidence is more substantial in developing countries. Furthermore, it is confirmed in all models, as in LLMC, that the direct effect of income inequality on economic growth is motsepe trading platform negative. On the other hand, it can be said that the studies suggesting that income inequality is harmful to economic growth are more common. Similar to the positive effects, the negative impact of income inequality on growth can occur through different channels.