Income inequality and economic growth: the reexamination of the existence of Kuznets curve: evidence from CEE countries
Keywordsincome inequalities, Kuznets curve, economic growth
Motivation: In the last years, a lot of attention has been paid to economic inequality — a phenomenon that may lead to what some commentators predict as the end of capitalism. At the same time some economists believe that the economic inequalities are natural and excessive inequalities can be reduced through the process of economic growth. The natural starting point in the discussion concerning the relation between inequality and economic growth is the theory proposed by Simon Kuznets, according to which inequality rises in the early phases of economic development but falls eventually as the growth advances, taking the shape of the inverse-U shaped pattern. The empirical validity of the so-called “Kuznets curve” has been intensively investigated, but the evidence is ambiguous. In this context re-examining Kuznets theory in CEE countries is interesting especially because of the observed rapid economic growth as a result of structural transformation in these countries.
Aim: The aim of the study is an attempt to investigate the nature of relation between economic growth and income inequality levels in Central and Eastern Europe (CEE) countries in years 2004–2020 and verify if the analysed relation is taking an inverse-U shape as indicated by the Kuznets curve.
Results: The results of conducted analysis indicate that the evidence for an inverted-U shaped relation between inequality levels and economic growth in CEE countries is much less robust than what is implied by Kuznets curve theory.
Acemoglu, D., & Robinson, J.A. (2000). Why did the west extend the franchise: democracy, inequality, and growth in historical perspective. The Quarterly Journal of Economics, 115(4), 1167–1199. https://doi.org/10.1162/003355300555042.
Acemoglu, D.,& Robinson, J.A (2002). The political economy of the Kuznets curve. Review of Development Economics, 6(2), 183–202. https://doi.org/10.1111/1467-9361.00149.
Adelman, I. & Morris, C.T. (1973). Economic growth and social equity in developing countries. Stanford University Press.
Ahluwalia, M.S. (1976). Income distribution and development: some stylized facts. The American Economic Review, 66(2), 128–135.
Anand, S., & Kanbur, S.M.R. (1993a). Inequality and development: a critique. Journal of Development economics, 41(1), 19–43. https://doi.org/10.1016/0304-3878(93)90035-L.
Anand, S., & Kanbur, S.M.R. (1993b). The Kuznets process and the inequality: development relationship. Journal of Development Economics, 40(1), 25–52. https://doi.org/10.1016/0304-3878(93)90103-t.
Baltagi, B.H. (2005). Econometric analysis of panel data (3rd ed.). John Wiley & Sons.
Banerjee, A.V., & Duflo, E. (2003). Inequality and growth: what can the data say. Journal of Economic Growth, 8, 267–299. https://doi.org/10.1023/A:1026205114860.
Barro, R.J. (2000). Inequality and Growth in a Panel of Countries. Journal of Economic Growth, 5(1), 5–32. https://doi.org/10.1023/A:1009850119329.
Bhattacharya, M. (2019). The environmental Kuznets curve: a critical review of earlier literature. In B. Özcan, & I. Öztürk (Eds.), Environmental Kuznets Curve (EKC), (pp. 9–14). Academic Press. https://doi.org/10.1016/B978-0-12-816797-7.00002-3.
Brida, J.G., Risso, W.A., Sánchez Carrera, E.J., & Segarra, V. (2021). Growth and inequality in the Mexican states: regimes, thresholds, and traps. Papers in Regional Science, 100(5), 1295–1322. https://doi.org/10.1111/pirs.12616.
Bruno, M., Ravallion, M., & Squire, L. (1998). Equity and growth in developing countries: old and new perspectives on the policy issues. In V. Tanzi, & K. Chu (Eds.), Income distribution and high-quality growth (pp. 117–146). MIT Press.
Cheng, W., & Yongzheng W. (2017). Understanding the Kuznets process: an empirical investigation of income inequality in China: 1978–2011. Social Indicators Research, 134(1), 631–650. https://doi.org/10.1007/s11205-016-1435-x.
Deaton, A. (2013). The great escape: health, wealth, and the origins of inequality. Princeton University Press. https://doi.org/10.2307/j.ctt3fgxbm.
Eurostat. (2022). Eurostat database. Retrieved 01.09.2022 from https://ec.europa.eu/eurostat/data/database.
Fields, G. (2001). Distribution and development: a new look at the developing world. MIT Press.
Fields, G.S. & Jakubson, G.H. (1994). New evidence on the Kuznets curve. Cornell University.
Ille, S., Risso, A., & Sanchez Carrera, E.J. (2017). Democratization and inequality: empirical evidence for the Organisation for Economic Co-operation and Development member countries. Environment and Planning C: Politics and Space, 35(6), 1098–1116. https://doi.org/10.1177/0263774X16684521.
Kanbur, R. (2012). Does Kuznets still matter. In S. Kochhar (Ed.), Policy making for Indian planning: essays on contemporary issues in honor of Montek S. Ahluwalia (pp. 5–128). Academic Foundation Press.
Kuznets, S. (1955). Economic growth and income inequality. The American Economic Review, 45(1), 1–28.
Levin, A., Lin, C.F. & Chu, C.S.J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1–24. https://doi.org/10.1016/S0304-4076(01)00098-7.
Milanovic, B. (2016). Introducing Kuznets waves: how income inequality waxes and wanes over the very long run. Retrieved 01.09.2022 from https://cepr.org/voxeu/columns/introducing-kuznets-waves-how-income-inequality-waxes-and-wanes-over-very-long-run.
Oczki, J., Muszyńska, J., & Wędrowska, E. (2017). Kuznets hypothesis of income inequality: empirical evidence from EU. Hradec Economic Days, 7(1), 643–651.
Paukert, F. (1973). Income distribution at different levels of development. International Labour Review, 108(1), 97–125.
Piketty, T. (2006). The Kuznets curve: yesterday and tomorrow. In A.V. Banerjee, R. Benabou, & D. Mookherjee (Eds.), Understanding poverty (pp. 63–72). Oxford Academic. https://doi.org/10.1093/0195305191.003.0004.
Piketty, T. (2014). Capital in the twenty first century. The Belknap Press.
Ram, R. (1997). Level of economic development and income inequality: evidence from the postwar developed world. Southern Economic Journal, 64(2), 576–583. https://doi.org/10.2307/1060869.
Ravallion, M., & Chen, S. (1997). What can new survey data tell us about recent changes in distribution and poverty. The World Bank Economic Review, 11(2), 357–382.
Risso, W., & Sanchez Carrera, E.J. (2019). On the impact of innovation and inequality in economic growth. Economics of Innovation and New Technology, 28(1), 64–81. https://doi.org/10.1080/10438599.2018.1429534.
Robinson, S. (1976). A note on the U hypothesis relating income inequality and economic development. The American Economic Review, 66(3), 437–440.
WID.world. (2022). World inequality database. Retrieved 01.09.2022 from https://wid.world.
How to Cite
Copyright (c) 2023 Sławomir Kuźmar
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.
Number of views and downloads: 310
Number of citations: 0