The Impact of Income Inequality on Economic Growth Through Channels in the European Union

Zita Tamasauskiene () and Aidas Dilius ()
Additional contact information
Zita Tamasauskiene: Siauliai University
Aidas Dilius: Siauliai University

A chapter in Eurasian Economic Perspectives, 2020, pp 315-330 from Springer

Abstract: Abstract There is contradictory evidence about the impact of rising income inequality on economic growth through different transmission channels. Inequality can positively influence growth by raising savings and investments, providing incentives for innovation, investment in research and development, as rich people save a higher part of their income, especially in less developed countries. However, inequality may be harmful to growth because it leads to higher levels of social and economic instability, which reduces investment. Investment may also be discouraged by less demand from lower income households in countries where the level of inequality is high. The aim of this research is to assess the impact of income inequality on economic growth through the savings channel and sociopolitical unrest channel in the European Union’s 28 countries grouped according to the level of income inequality and country’s level of development. We use the ordinary least square regression method for panel data of 28 EU countries, divided into groups, over the period 1995–2014. Econometric results show that rising inequality has a negative impact on growth through savings channels in all groups of countries. However, it was also found that rising inequality had a negative impact on growth through the sociopolitical unrest transmission channel in the groups of the countries defined by the lower income inequality level at different stages of country development and a positive impact in the groups of the countries defined by the higher income inequality level.

Keywords: Income inequality; Economic growth; Savings channel; Sociopolitical unrest channel (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eurchp:978-3-030-40375-1_22

Ordering information: This item can be ordered from
http://www.springer.com/9783030403751

DOI: 10.1007/978-3-030-40375-1_22

Access Statistics for this chapter

More chapters in Eurasian Studies in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().