The two-way causality of wealth inequality and economic development

M. L. Dorofeev ()

Voprosy Ekonomiki, 2026, issue 8

Abstract: Identifying causal relationships between wealth inequality and economic development has gained particular relevance amidst global economic instability and the implementation of national sustainable development goals. The timeliness of this study is driven by the need to clarify the nature of bidirectional causality between wealth inequality and economic growth indicators to develop effective strategies for state financial regulation. The objective of this research is to empirically assess the bidirectional causality between wealth inequality and economic growth, accounting for the heterogeneity of effects across per capita income levels. The results reveal a fundamental asymmetry in the impact of wealth inequality on economic indicators. In models of economic growth rates, a direct link with wealth inequality is not supported. Conversely, models of welfare levels (log GDP per capita at PPP) demonstrate a statistically significant nonlinear relationship, indicating that rising wealth inequality is associated with declining welfare levels up to a threshold value of 0.84 on the wealth Gini coefficient. Drawing on a representative global sample, the study demonstrates for the first time that aggregated models failing to distinguish between the effects of wealth inequality on welfare levels and on growth rates can produce biased conclusions and conflate opposing directional effects. The research identifies a fundamental asymmetry in the mechanisms of wealth inequality formation between low- and high-income countries, thereby refuting the universal applicability of Kuznets hypothesis to wealth distribution and highlighting the need to abandon the search for a single curve in favor of context-dependent analysis. It justifies a methodological shift from aggregated to structurally differentiated approaches, in which diagnostics are based not solely on the Gini index but on the decomposition of wealth by functional asset categories and institutional context. Based on these findings, the following policy recommendations are proposed for the Russian Federation. Wealth inequality should be stabilized at its current level through differentiated taxation of assets, taking into account their functional purpose. It is advisable to create conditions for moderate acceleration of economic growth rates while cautiously transforming the system of property taxation, inheritance mechanisms, and transparency of asset ownership. Short-term fiscal measures, at certain stages of development, are insufficient to overcome the structural long-term resilience of wealth inequality.

Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:nos:voprec:y:2026:id:5675

DOI: 10.32609/0042-8736-2026-8-125-154

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