Income inequality and economic growth——the Kuznets curve revisited

Abstract

In a neoclassical growth framework with a typical political-economy mechanism, this paper reexamines the relationship between the income inequality and economic growth by introducing government spending into the production function and the utility function. It demonstrates that Kuznets  famous inverted-U shape relationship between inequality and economic growth will hold the growth rate will be first increasing with the income inequality before the growth rate decreases with inequality.