The relationship between income inequality and economic growth

The main aim of this study is to determine whether there is an impact of income inequality on economic growth. The theoritical studies emphasizes that there are positive, negative and no significant relationship between income inequality and the economic growth. However, empirical studies have quite differrent results in the same direction with theoretical studies. Therefore, in this study, the impact of income inequality on the economic growth is analysed for the countries which have differrent income levels. To find out more precisely the impact of income inequality on economic growth, panel data that covers the period between 1980 and 2014 for 154 countries is employed for low and low-middle, upper-middle and high income countries. The estimations attained related with how income inequality effects economic growth are based on basic Solow growth model (1956) and Mankiw, Romer and Weil (1992) model in which human capital is included, in other words augmented Solow growth model. The findings of study indicate that the impact of income inequality on economic growth may change according to income level of countries. More specificially, higher income inqeuality leads to higher economic growth in low and low-middle income countries while higher income inqeuality causes lower economic growth in uppermiddle and high income countries. Keywords: Income Inequality, Economic Growth, Solow Growth Model, System Generalized Methods of Moments.