Evidence of the credit markets imperfections channel for Vietnam as a lower-middle-income economy (Le & Nguyen, 2019) shows the importance of the developed financial system in low-income countries. If poor individuals have the opportunity to invest in their human capital, economic growth will increase. This result may also be due to the tertiary education indicator used to represent the education level. The validity of the political economy channel is also examined in many https://agc-investment.com empirical studies (Persson & Tabellini, 1994; Alesina and Rodrick, 1994; Babu et al., 2016; Chletsos & Fatouros, 2016; Castells-Quintana & Royuela, 2017; Gründler & Scheuermeyer, 2018; Le & Nguyen, 2019; Ciegis and Dilius, 2019).
Towards Inclusive and Equitable Education
Therefore, a high level of economic growth can be achieved with increased investments (Kaldor, 1955). Secondly, income inequality promotes economic growth through innovation and R&D incentives. Initially, the innovation market is small, as only wealthy consumers purchase new products. The higher share of the rich in the population leads to an increase in the value of innovation.
Annexure 2: Evolution of Key Variables
Therefore, the https://agc-investment.com increase in the value of innovation encourages innovative activities and long-term growth (Foellmi & Zweimüller, 2006). Finally, differences in income distribution provide incentives for factors such as education, investment in physical capital, risk-taking, and hard work. First, his regression analysis control for education, fertility, investment, and it therefore excludes, by construction, the important effect of inequality on growth via education, fertility, and investment. His findings simply imply that inequality has no direct effect on growth beyond the important indirect effects through the main channels proposed in the literature.
Interrelationship Between Economic Growth and Income Inequality: The Indian Experience
This research is supported by the Jönköping International Business School, Jönköping University (Sweden), in collaboration with Addis Ababa University for doctoral studies in economics, a project supported by the Swedish International Development Cooperation Agency (SIDA). Ostry, J D, A Berg, and G D Tsangarides (2014), “Redistribution, Inequality, and Growth”, IMF Staff Discussion Note No. OECD iLibraryis the online library of the Organisation for Economic Cooperation and Development (OECD) featuring its books, papers, podcasts and statistics and is the knowledge base of OECD’s analysis and data. Your login credentials do not authorize you to access this content in the selected format. Access to this content in this format requires a current subscription or a prior purchase.
Does the Profile of Income Inequality Matter for Economic Growth?
Both the level and composition of public expenditures and revenues have implications for economic development, as argued by the ‘fiscal multiplier’ and the ‘quality of public finance’ literature. European Union countries have very diverse public finance structures and different levels of effectiveness, and there is room for improvement in growth and https://www.ussc.gov/sites/default/files/pdf/training/annual-national-training-seminar/2018/Emerging_Tech_Bitcoin_Crypto.pdf equality impacts in all countries. A general guideline would be that the most effective approach comprises progressive taxes and inheritance taxes, spending on education, health and public infrastructure, and better government effectiveness. At the height of the 2008 global and the subsequent European financial and economic crises, the fiscal consolidation strategies of EU countries largely relied on cutting public investment and social spending (except pensions), which is the opposite of what is suggested in the literature.
Education
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- Quantitatively, the size of the coefficient on the interaction term implies that differences in initial income induce a substantial effect on the impact that changes in income inequality have on GDP per capita.
- Knowing that a more equal distribution of resources may be good for development is one thing; having the right instruments to implement it is another.
- Furthermore, within-country increases in income inequality significantly increase human capital (measured by the average years of schooling and share of the population with a secondary and tertiary education) in poor countries.
- 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.
Greater inequality could foster aggregate savings and capital accumulation, because the rich save relatively more (Bourguignon 1981; Kaldor 1957). Fuentes and https://consumer.ftc.gov/articles/what-know-about-cryptocurrency-and-scams Leamer (2019) provide theory and evidence that worker effort has played an important role in the increase in income inequality in the United States between 1980 and 2016. 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.
Against the view that high inequality will put pressure on redistribution and damage economic growth, it is also argued that higher inequality can lead to higher growth via the lower taxation and human capital channel (Chletsos & https://www.thedailybeast.com/trump-hits-nyc-to-hand-out-crypto-burgers-as-swing-state-polls-slump Fatouros, 2016). In this view, high inequality favours low taxation to consume more or high taxation to increase public education. As seen in the table, the differences in the results obtained in the studies suggest that countries should be grouped according to their level of development and perhaps income inequality.