Why is income inequality necessary for economic growth? If income equality is achieved, will economic growth stagnate?

Abstract

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.