Why is income inequality necessary for economic growth? If income equality is achieved, will economic growth stagnate?
Tan, Melisa Mei Jin
Date of Issue2014
S. Rajaratnam School of International Studies
Intense emotions tend to gather on the issue of income inequality with many scholars rallying the negative impacts of income inequality on economic growth. There may not be one best positive impact of income inequality, but a careful thought on the causal and consequences of income inequality will shed light that beyond the negativity, positive impacts of income inequality on economic growth are also worth investigating. I argue in this paper that income inequality is necessary for economic growth and I state three such positive impacts. I explore an assumption of zero income inequality where stagnated economic growth is observed. I discuss three plausible means to tackle the issue of income inequality in the paper. Based on the findings, I conclude that income inequality is part and parcel of economic growth. It is an element of economic growth which cannot be eradicated but can be reduced to a reasonable level. In addition, there are measures which policymakers can take to manage the income inequality more effectively. Keywords: income inequality, economic growth, acceptable level of income inequality.
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