The Reasons Behind the Kuznets Curve

When talking about inequality in income distribution in society, it is inevitable that it talks about the relationship with the economic development process. About half a century ago, Simon Kuznets made a hypothesis about the relationship between the two. It appeared as an inverted U shaped curve - Kuznets curve. The inverted U-shaped pattern increases visibly at the initial stage of development and then visually shows the time characteristic decreasing as the development level increases.

When coming to India, we should not be too concerned about Osfa report due to the Kuznets curve. The Kuznets curve named after the Nobel laureate Simon Kuznets assumes that high growth leads to inequality, then flattenes and decreases with an inverted U-shaped trajectory. One of the explanations of this curve relates to investment opportunities used primarily by wealthy individuals in the early stages of developing countries and thus bringing multiplier effects to the assets of people who have already invested (starting competition). Given the role of inheriting assets in India, the benefits of multiplier effect / moving first are far more serious. Since most of India's top 1% have inherited wealth from the previous generation, when India is in the early stages of developing economies, most of existing wealth is created.

Barro also studied the impact of economic development on inequality. The traditional relationship here is the "Kuznets curve" named after the Nobel laureate and Simon Kuznets of the former NBER branch. This curve represents the U-shaped relationship between inequality and growth. Inequality first increases in the process of economic development and then decreases. Kuznets explained this from the transition from rural / agricultural sector to urban / industrial sector. This relationship also appears in Barro's analysis. However, this curve not only reflects the impact of per capita income levels, but may also reflect the impact of adopting new technologies. The poor tend to use older technology, while rich people are using more advanced technology.