How Does Income Inequality Affect Economic Growth

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Another argued driver of income inequality in the studied area is income distribution from different sources (capital, property, investment…). Over the last 20 years, this distribution has grown to be less equal. For instance, although capital income represents only a modest share of households income, its increase in inequality in the majority of OECD countries during the last 20 year have substantially widened the inequality gap. This raise principally caused by change in the upper part of the distribution. While earnings have always been the major cause of inequality in each and every country of the area, since the mid-1990s, their contribution to income inequality remarkably fell.
Self-employment also impacts the overall earnings inequality since the income it engenders tends to be less even than traditional
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A negative relationship between inequality and growth

According to Perotti (1996), the negative impact of income inequality on economic growth can be summarized into four main arguments.
The first argument is that an imbalanced distribution of income most of the time pressures the authorities to implement distortionary taxes as a way to redistribute income and reduce inequality. However, these measures lead to a slower economic growth. Perotti (1996) also clarified that it is the pre-tax income inequality that is harmful to the growth of the nation, and that an equal after-tax distribution is only a result of the implementation of progressive taxation.
The second argument is that income inequality could cause sociopolitical instability which can result in lower investment rate and therefore lower growth. Even though it normally takes some time for inequality to cause a political instability, its impact on investment and growth tend to be instantaneous.
The third argument is that in the case of imperfect capital markets, income inequality could more likely lead to a decrease in investment in human resources which causes a shrink in the economic

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