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Inequality, Growth and Welfare: The Main Links

Joel Hellier and Stéphane Lambrecht

Chapter 9 in Growing Income Inequalities, 2013, pp 274-311 from Palgrave Macmillan

Abstract: Abstract Since Kuznets’ seminal article (1955), the analysis of the links between growth, development, inequality and welfare has generated a large body of economic literature. Three main questions have been addressed: 1) What is the impact of growth and development on inequality? 2) What is the impact of inequality on growth and welfare? 3) What is the impact of pro-equality policies (redistribution, tax regimes, education etc.) upon growth and welfare? Up to the early eighties, in line with Kuznets’ hypothesis (henceforth KH) economists had considered the relation between development and inequality as following an inverted-U curve. This was explained by two key mechanisms: 1) In the early stage of economic development, rising inequality essentially results from the income divergence between the traditional sector and the modern sector. Inequality then decreases when the weight of the traditional sector becomes sufficiently small. 2) When the economy reaches a certain level of development, more resources are allocated to education and redistribution, which lowers inequality.

Keywords: Social Capital; Human Capital; Income Inequality; Income Distribution; American Economic Review (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1057/9781137283306_10

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