Income Distribution and Economic Growth: A Complementary Cross Country Study to the Kuznets Curve

Abstract

This study aims to analyze the relationship between income distribution and economic growth using cross country data. The study also investigates whether there is a certain level of Gini coefficient which maximizes GDP growth rate. The available data on Gini coefficients and GDP growth rates of 105 countries is used to test a nonlinear relationship between these two variables, namely Inequality-Growth Curve (IGC). The model is first estimated for 2001 and then the estimation is repeated for 2011. The Gini coefficient which maximizes GDP growth rate is estimated as 0,436 for 2001 and 0,464 for 2011. Also, IGC is compared with Kuznets Curve. This paper suggests that, being opposite to the common sense, developing countries should reduce income inequality to increase their GDP growth rates while developed countries should increase