Income Inequality and Economic Growth: A Simple Theoretical Synthesis

Been-Lon Chen and Jang-Ting Guo

Annals of Economics and Finance, 2005, vol. 6, issue 2, 319-329

Abstract: We show that in an AK model of endogenous growth with CRRA specifications for both private and public consumption goods, income inequality exerts theoretically ambiguous effects on the optimal capital tax rate and the economy¡¯s growth rate. In a calibrated version of the model, we find that the parameter space can be clearly divided into regions that exhibit a positive or negative relationship between income inequality and economic growth. Hence, our analysis provides a theoretical synthesis on the relationship between inequality and growth and helps bring together some recent results in the literature.

Keywords: Income inequality; Economic growth; Optimal taxation (search for similar items in EconPapers)
JEL-codes: H21 O41 P16 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2005:v:6:i:2:p:319-329

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