Are Real Incomes Increasing Or Not? Household Perceptions And Their Role For Consumption

Therefore, it is stated that in countries with high-income inequality, increasing fertility rates will reduce economic growth (Galor & Weil, 1996; Galor & Zang, 1997; Kremer & Chen, 2002; De La Croix and Doepke, 2003). Its main focus is on examining how functional income distribution can influence the evolution of productivity and thereby promote economic growth. We obtained key variables and their evolution from the Ethiopian Central Statistical Agency dataset on medium and large scale manufacturing firms. The paper uses the evolutionary economic framework and the evolutionary theory jointly with its evolutionary econometric approach.

The Impact of Income Inequality on Economic Growth Through Channels in the European Union

Among economic issues, a high level of inequality might lead households to rely on debt financing to maintain living standards, a factor that might have been a significant driver of the housing boom in the pre-crisis period in the US, and the consequent bust (Rajan 2011; Van Treeck 2014). Greater inequality could reduce the level and duration of periods of growth (Berg et al. 2018), and could also be linked to greater financial instability (Skott 2013; Vandemoortele 2009). For the euro area, Darvas and Wolff (2014) showed that in countries with greater inequality, households tended to borrow more prior to the crisis, resulting in more subdued consumption growth during the crisis.

The impact of patents and R&D on economic growth (except column 1)Footnote 27 is https://standardbank.co.za/ positive. Thus, income inequality in UHC promotes economic growth even if it does not positively affect innovation. On the other hand, when the savings channels are controlled, the effects of variables on economic growth are positive (columns 3–4a). When the income inequality is evaluated together with its effect of increasing savings in UHC, it can be said that the positive channel is valid, but this is the indirect effect.

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The most significant effect of control variables on economic growth in the estimates made for LLMC emerges for primary school enrolment, which represents https://www.sanlam.co.za/ the level of human capital. The significantly positive variable in most models shows how important human capital is for economic growth, especially in developing countries. Similarly, the inflation rate has a significant negative effect on growth, except for a few models.

The Confucian doctrine of the Mean, the optimality principle, and social harmony

Estonia hardly pays any interest due to its very low public debt level (gross public debt was only 8 percent of GDP in 2018). Sweden and Luxembourg also pays less than half a percent of GDP on interest, and there are seven countries that pay between half and one percent of GDP. High income inequality can also influence politics by boosting protest votes in referenda and elections. Darvas (2016) concluded that income inequality boosted the vote for Brexit in the UK’s EU membership referendum in June 2016. Darvas and Efstathou (2016) concluded that income inequality boosted the vote for Donald Trump in the 2016 US presidential election.3 These results can be regarded as protest votes against the status quo, with profound political implications.

What scenarios are we looking at?

While the situation of each country should be analysed considering its special circumstances, there is room for improvement in terms of the growth and equality impacts in all countries. A general guideline would be that there should be progressive taxes and inheritance taxes, spending on education, health and public infrastructure, and better government effectiveness. As regards distortionary/non-distortionary taxes and productive/unproductive expenditures, Alinaghi and Reed (2018) adopt the classification of Kneller et al. (1999). Those taxes are considered distortionary which affect the investment decisions of sasol fuel agents (with respect to physical and/or human capital), creating tax wedges and hence distorting the steady-state rate of growth. Non-distortionary taxation does not affect saving/investment decisions because of the assumed nature of the preference function, and hence has no effect on the rate of growth. In this classification, distortionary taxes are the various kinds of taxes and social security contributions on income and profit as well as taxes on property, while consumption taxes are classified as non-distortionary.

• On the other hand, in economies with high inequality, inequality will damage economic growth as it can lead to political decisions that cause net return on investment to fall.
• Sapir (2006) argued that the efficiency of the Mediterranean social model is low and at the same time inequality levels are high.
• This sees small increases in both the central and the high growth scenarios, and poverty falling in the very high employment and growth scenario compared to January 2025, but remains at around 10 million.
• Without the significant employment rate boost in the very high employment and growth scenario, a strong economy is even more unlikely to reduce poverty.

This paper extended the overlapping generation model to include different types of individuals. The importance of the paper is in its ability to analyze the changes in the income of various categories of workers along the growth path of the economy. A further economic variable, GDP per capita, is considered in our assessment of the implications for growth for each scenario. Positive and negative inputs into the scenarios are all based on published ranges in OBR, Bank of England and HM Treasury forecasts, and are detailed in Annex 1.

Greater inequality and financial market imperfections might reduce the capacity of low-income households to invest in education, lowering economic growth (Galor – Zeira 1993). Under-investment in human capital by poorer segments of society might reduce social mobility and adequate allocation of talent across occupations (Banerjee – Newman, 1993; Fershtman et al. 1996; Owen – Weil 1998). Greater inequality might also reduce growth if it leads to political instability and social unrest (Alesina – Perotti 1996; Keefer – Knack 2002).

The major findings and conclusions of this paper are lack of strong evidence of evolution (intra-industry selection) to foster productivity growth and reallocation (structural change). The employment share of each firm within an industry entered the model with a negative sign but a significant coefficient. In economic terms, the positive and negative coefficients of labor share within a firm and employment share of each firm within the industry give us important information about structural changes within the manufacturing sector.