Income Inequality and Economic Development

Since the 1990s, the poverty rate of the world has declined from 43% in 2010 to 21%. More than 1 billion people in developing countries are escaping poverty (Economist, 2013). Most of the growth is from China and India who bailed out 716 million poor people. Since I have not seen this "economic miracle" so far, it provides opportunities for developing countries to achieve economic development. However, with the rise of these countries, other problems have arisen between policy makers and economists.

Let's see the economic inequality and its relationship with developed countries and developing countries. First, economic inequality is defined as the difference between wealth, asset, or income among individuals or groups. This difference can be observed on an individual area in large scale or on a global scale. When discussing economic inequality on a global scale it is important to know that the country can be divided into two categories based on per capita income, ie per capita income. These two types are developed countries and developing countries.

A study of the relationship between income disparity and development began with pioneering research by Simon Kuznets, who studied economic growth and income disparity and proposed a hypothesis that is currently considered the Kuznets hypothesis or inverse U type hypothesis. . The Kuznets hypothesis constitutes the basis of most of the previous studies to analyze the relationship between income disparity and growth. Kuznets (1955) assumes that in the early stages of development, national economic growth and inequality will increase. As the country develops and grows, the income disparity between rich and poor should shrink. Indeed, according to Kuznets, low inequality, low-income agricultural economies are gradually shifting to high-income, somewhat inequitable economies characterized by industrial production. This change will result in an inverted U-shaped relationship between real GDP per capita and inequality.

► We examined the impact of income disparity on economic growth. ► If inequality is large, growth at the initial stage of economic development may be hindered. ► As inequality increases, almost stable growth is expected. ► In the metastable state, you can reduce income disparity by raising income tax. ► In the early stages of development income taxes can not reduce income disparity