Impact of Economic Growth on Income Distribution: Are the Effects Asymmetric?

Abstract

Kuznets’ inverted-U hypothesis asserts that at the early stages of economic growth income inequality gets worse. It only improves after a threshold growth level is reached. Like previous research, when we considered time series data from each of the 41 countries in our sample and a linear ARDL approach, we only found support for the hypothesis in four countries. However, when we shifted to nonlinear ARDL approach which separates economic booms from recessions, we were able to find support for the hypothesis in 15 countries. In many countries we found economic activity to have asymmetric effects on income inequality which is not considered by previous research.