The relationship between income inequality and economic growth: An empirical investigation

The curiosity created by the increase in the number of ongoing theoretical and empirical studies and the widening of its scope has been the starting point of the study. In contrast to other studies, this study evaluates whether income inequality creates economic growth or not in three sections rather than making a correlative assessment of the inequality-growth relationship by drawing a conceptual, theoretical and empirical framework in the first two chapters. Hansen (1999) threshold value analysis is used for this reason. A balanced panel is created with annual and five-year average datas for the period 1996-2016. There are 60 countries subject to analysis. These countries are first examined in a single panel with annual datas. The countries which are separated according to World Bank income classification are analyzed in four different panels with annual datas again. All countries are examined in a panel with five-year average datas, and are further examined in five panels with annual and five-year average datas in order to measure the effectiveness of taxes and transfers. Gini coefficient, which is an indicator of inequality, is defined as threshold variable and regime dependent variable. In relation to the Gini coefficient, two different inequality variables and the efficiency of taxes and transfers obtained from these variables are set as thresholds. Annual growth rate of per capita gross domestic product is defined as the dependent variable and control variables are added to the model. Tables of estimation findings, evaluations of the relationship between findings and theoretical and empirical approaches and policy recommendations are included in the third section. The threshold effect of income inequality on economic growth differs in terms of meaningful and meaningless results in separate panels and policy recommendations are asserted regarding those findings.