ABSTRACT
There is a large literature discussing the relationship between economic growth and income distribution. The literature in this area originated from the pioneering work of Kuznets (1955) who proposes that income inequality widens in the early phases of economic growth followed by stabilisation and, as the economy continues to develop, an eventual narrowing of income dispersion. Since the publication of Kuznets’ work, the interaction between economic growth and income disparity has remained a topic of active research. In the literature, there is a debate over whether growth affects inequality or inequality affects growth, see for example, Chang (1994), Anand and Kanbur (1993), and Persson and Tabellini (1994). Using household survey data from sixty-seven economies, Ravallion and Chen (1997) find that changes in inequality were uncorrelated with changes in average living standards. Moreover, the experience of East Asian economies shows that we can achieve economic growth with relatively low levels of income inequality (Birdsall et al. 1995).
