Sweden and Luxembourg also pays less than half a percent of GDP on interest, and there are seven countries that pay between half and one percent of GDP. High income inequality can also influence politics by boosting protest votes in referenda and elections. Darvas (2016) concluded that income inequality boosted the vote for Brexit in the UK’s EU membership referendum in June 2016. Darvas and Efstathou (2016) concluded that income inequality boosted the vote for Donald Trump in the 2016 US presidential election.3 These results can be regarded as protest votes against the status quo, with profound political implications.
Symbolic and realistic threats – frame analysis of political and media discourses about refugees and migrants
1 Ideally, in the cross-country time series context, we would like to use data on the distribution of wealth rather than income since wealth inequality is the relevant measure in theoretical models with credit market imperfections. Unfortunately, data on wealth inequality are not available to generate a long time-series for a large number of countries. As noted in previous empirical research (e.g. Perotti 1996), income inequality and wealth inequality are highly positively correlated. Extensive literature shows that both the level and composition of public expenditures and revenues have implications for economic development. The discussion on the short-term impacts of public finance decisions was especially active after the 2008 global and the subsequent European financial and economic crises, when several countries implemented fiscal consolidation strategies.
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- Primary school enrolment used for human capital is positive in models where it is significant, but unlike LLMC, this finding is confirmed in fewer models.
- The negative impact of these channels on economic growth is more pronounced in relatively low-income countries.
- In early stages of industrialization, as physical capital accumulation was a prime engine of growth, inequality enhanced the process of development by channeling resources towards individuals whose marginal propensity to save is higher.
- Therefore, the increase in the fertility rate in low-income countries damages to economic growth more than in UHC.
- Our empirical analysis starts from the premise that the effect of changes in income inequality on GDP per capita may differ between rich and poor countries.
Because, as we previously stated, while income inequality negatively affects human capital, financial development positively affects human capital. Therefore, the finding that human capital supports economic growth, as illustrated here, indirectly supports the credit markets imperfections channel. For this reason, as the financial market develops in developing countries, if individuals use credit opportunities to invest in their human capital, economic growth will increase.
Literature Review
If inequality becomes unacceptable for voters, they might insist on higher taxation and regulation, as well as mistrust businesses, reducing incentives to invest (Alesina – Rodrik 1994; Bertola 1993). The basic idea of the model based on the Benhabib and Rustichini (1996), Alesina and Perotti (1996), Alesina et al. (1996) studies is that increasing income inequality will initially increase social unrest. This situation negatively affects investment by increasing coups, revolutions, and acts of violence in society, or more generally, political uncertainty and by threatening the property rights of individuals. A decrease in investments due to the deterioration of peace and stability in society will negatively affect economic growth (Alesina & Perotti, 1996). While the level sasol firm of income inequality in European Union (EU) countries is generally lower than in other advanced and emerging countries, there are large differences between EU member states and recent changes in the income distribution cannot always be regarded as ‘fair’.
THE IMPACT OF INCOME INEQUALITY ON ECONOMIC GROWTH: A COMPREHENSIVE STUDY
It is seen that significant coefficients are positive in estimates for redistribution from columns (3) to columns https://www.capitecbank.co.za/ (4a). These results, which lend support to Paul and Verdier (1996), who oppose the political economy channel, can be explained by the fact that redistribution can increase economic growth as it allows the poor to invest in human capital. These results are supported since human capital stimulates economic growth in these countries.
The Impact of Income Inequality on Economic Growth Through Channels in the European Union
This literature is frequently referred to as the ‘fiscal multiplier’ discussion (e.g. Auerbach – Gorodnichenko 2012; Blanchard – Leigh 2013). The other main relevant theme of the literature focuses on the longer-term impacts of the public finance structure on the level, or even the growth, of https://fnb.co.za/ the economy, which can be referred to the ‘quality of public finance’ discussion (e.g. Barrios and Schaechter, 2008; European Commission 2012). The composition of, and changes in, tax revenues have the greatest impact when taxes are paid.
Effects of income inequality on economic growth
As regards distortionary/non-distortionary taxes and productive/unproductive expenditures, Alinaghi and Reed (2018) adopt the classification of Kneller et al. (1999). Those taxes are considered distortionary which affect the investment decisions of agents (with respect to physical and/or human capital), creating tax wedges and hence distorting the steady-state rate of growth. Non-distortionary taxation does not affect saving/investment decisions because of the assumed nature of the preference function, and hence has no effect on the rate of growth. In https://www.easyequities.co.za/ this classification, distortionary taxes are the various kinds of taxes and social security contributions on income and profit as well as taxes on property, while consumption taxes are classified as non-distortionary.