Income inequality and economic growth have long been a debate among manyeconomists. The main purpose of the economic policies is to increase the levelof economic well-being of all individuals and classes who shape the society. Asthe economy grows, the most important way of analyzing the change in theeconomic welfare of the individual and the social classes is incomedistribution and poverty statistics.
Along increase of growth rate and currentper capita give a general idea of the change in the level of economicwell-being, income distribution and poverty are essential indicators thatshould be taken into account in order to clarify the distribution of wealthgrowth between social classes and individuals in the growth process. Background to the Study Although income inequality and economic growth are the topical issues ofsociety at all times, industrial capitalism was paid special attention, whichemerged after the industrial revolution (Çelik, 2004). After the industrialrevolution, while the profits of the bourgeois class on the one hand have risento the extreme, the rise and even fall of wages has resulted in a clearlyvisible problem of income inequality.This has led to industrial unrest, greatunrest, and fierce ideological conflicts (Aksu, 1993).
Until the understandingof the social state that prevailed after the World War II, the theory ofeconomics was dealing with long-term economic problems such as capitalaccumulation and growth, and it was assumed that the problem of incomeinequality and poverty would be solved spontaneously with growth over time.However, especially in developing countries, rapid economic the growingdeterioration of income distribution and the increase of poverty caused incomeinequality to be seen as an important economic and social problem. Along withthe widespread understanding of the social state, social policies aimed atexploiting the benefits of poor and low-income citizens, who constitute thelowest level of society, have benefited from at least the benefits of growth.The understanding of the social state aims at ensuring development on the onehand, and on the other hand, benefiting all citizens from the blessings ofdevelopment in a fair way (?enses, 1991).
Purpose of the StudyThe main aim of the current study is to explain effects of economicgrowth on income inequality under the light of countries’ level of development andto determine the affect of different stages of economic development on incomedistribution. Problem Statement The study determines therelationship between economicgrowth and income inequality. Specifically, the relationship betweeneconomic growth and income inequality has been explored by economists andpolicymakers. The distinguishing feature of this study from other studies isthe analysis of the studies by many authors to highlight the problem related toeconomic growth and income inequality in the societies in terms of global frompast to today.Research Questions Our research questions include some important definitions of income,income distribution and income inequality, basic concepts of incomedistribution, factors that determining income inequalities, theoreticalframework of economic growth.
Also according to “The Organisation for Economic Co-operationand Development”, questions of “What isa long-term rise of income inequality?” “How is inequality linked to growth?” “Whydoes inequality reduce growth?” “How can policy respond?”, we try to answerthese questions in the basis of other studies conducted by researchers aboutincome inequality and economic growth. LITERATUREREVIEWIntroductionAs an input , We can start by trying to explain which aspects of theeconomy are related to these concepts in the beginning. These magnitudes that constitutethe content of the course and the calculations belong to the Macro Economywhich deals with the general balance and magnitude of the economy. Therefore,it is useful to give some information about macroeconomic evolution first.Nativity of Macro Economy wasoccured by consequences of The WorldEconomic Crises in 1929. J.M.
Keynesexplained them in the work of Employment,Interest and the General Theory of Money and of course therewas some Macro Economic works before Keynes. For instance ; Quantity theory and Wealth of Nations of Adam Smith ‘s books. However theyare not independent disciplines by each other. Thus , consequences of these disciplines are about Macro Economic magnitude and calculations. IncomeIncome as a proxy for economic welfare. If one adopts an individualistic,welfarist approach to social economics then it is reasonable to be concernedwith individual well-being or utility.
Income as command over resources. If a person is losing power, perhapsdisposable income may be an adequate concept. But if economic inequality related to status thenevaluation of well-being could be more effective.Income DistributionIncome distribution can be defined as the distribution of nationalproduct or income, which is produced within a certain period of time, amongindividuals, groups or production items (Aktan & Vural, 2002). The maintypes of income distribution are:a. Functional Distribution ofIncome Functional distribution; is a concept that is used to analyze the distributionof income, especially among laborers and other generation factor owners.
Eachof the factor owners involved in the production process, from the goods andservices produced; they receive a share in the name of wages, rent, interestand profit. Payments made against these shares constitute the revenues of theowners of the production factor. b. Personal Income DistributionPersonal income distribution is the concept of income distribution whichshows the distribution of national income among the individuals or householdsconstituting the society.
In the distribution of personal income, it is not a matter of wages,profits, rents or interest that the share of the individual or the houses inthe national income. What is important in personal income distribution is nothow the individual gets income, how much income he earns. (Öçal, 1990)c.
Regional Income DistributionRegional income distribution is the definition of income distributionused to determine the distribution of an country’s national income betweenregions determined according to different criteria. In the regionaldistribution calculations, the country is usually analyzed by geographicalregions, by the quality of the settlement units (rural or urban) or by zonesaccording to the level of development.Almost, in any country, national income isnever distributed among the regions equally. d. Sectoral Income DistributionThe concept of sectoral income distribution means that the branches ofeconomic activity; industry, agriculture and services are used for the purposeof establishing the national income.
With sectoral distribution calculations,it is analyzed which sectors have favored or changed the changes in thedistribution of income over time. (Karluk, 2005)Income Inequality Income inequality is the distribution of household or personal income inequallyacross the various participants in an economy. The Factors of InequalityThe factors of income inequality could divid into economic development,demographic factors, political factors, cultural and environmental factors, andmacroeconomic factors.
To briefly explanation is economic development includesthat a country’s wealth, economic growth, technological development and thedevelopment of economic structure. Demographic factors include thaturbanisation, age, and composition of households, and also education level,education inequality, and education expenditure. Political factors are sharesof the government and the private sector, democratisation, liberalisation,etc.Cultural and environmental factors include that concentration, culturalvariation, shadow economy, corruption and also the abundance of naturalresources which are playing a crucial role on income inequality. The last oneis macroeconomic factors which include inflation, unemployment, financialdevelopment, export, import and foreign investments.
TheoreticalFramework of Economic GrowthGrowth is the first step in development. If growth does not follow thetransformations towards economic and social progress, development will not takeplace.The most important progress of development is the distribution of incomeequally to individuals or households.The most widely known economic growth models for the underdevelopedcountries in the economic literature are the models of Harrod-Domar, Singer,Robinson, Lewis, Leibenstein, Rostow and Kaldor. In the classic growth models include modelsof Smith, Ricardo, Malthus, Mill, McCulloch and Senior. In addition, Marx’sgrowth model as an alternative growth model, Schumpeter’s emphasis on economicdevelopment, and Hicks’s emphasis on conjuncture theory have an important placein growth theories.In addition to all these, Hirschman’s views on moreup-to-date unbalanced development must be carefully considered. It is one of the important debates in the economic literature thateconomic growth processes have created deterioration in income distribution, orin which stages deterioration and recovery are observed.
For example, Nurkse(1963) points out that in underdeveloped countries the capital accumulation isinsufficient and that the market is limited. According to him, it would beappropriate for the accumulation of limited capital to be transformed into abalanced investment in the complementary sectors where the demand issufficient. According to Fleming (1955), the success of balanced developmentbut only if the positive external economies are strong enough to negateexternal economies.Literature Findings Income Inequality MetricsMany studies have been conductedrelated to income inequality and economic growth.
There are many worksabout income inequality and growth economic. In this situation , to measurethis inequality , there are some measurement methods. So , firstly , the mostcommonly used in empirical studies. To measure inequality , usually , In theliterature, the GINI coefficient is used as the standard measurement. GINIcoefficient is a period between zero (0) and one (1) numbers. The full equalityof income distribution ( if necessary ) is equal to zero (0). According to Wade(2001) that there is no significant changein income distribution ,the problem is that the GINI Coefficient has been used .Because , while the GINI coefficientgives excessive weight to changes in the middle of the distribution, it givesvery little weight to the changes at the ends.
However , According to Dowrickand Akmal, studies that use the purchasing power parity have some form ofnon-neutral calculation. That is, such calculations tend to show more than theincomes of developing countries (Dowrick and Akmal,2001). ConclusionWe have some research questions and in this section , we try to presentanswers of these research questions. Our first question is “What is a long-termrise of income inequality?” and according to OECD , As a measure of thisdisparity, the richest 10% of the population now earns 9.
6 times more than thepoor 10%; this rate has reached to its present value by increasing from 9,1 in1980s to 7.1: 1990s in 8.1: 2000 years. The second question is “How isinequality linked to growth?” and according to OECD , inequality decrease theeconomic growth. The third question is “Why does inequality reduce growth?” andaccording to OECD, because differences purchasing power reduces the economicgrowth and inequality make a trigger on purchasing power of people balances.
The last question is “How can policy respond?” and as a respond , of coursethere should be some pressure on politicians . There are some ways to existpressures on them but the some of best ways are mass protests and syndicate .After then the politicians can have radical changes on economy to preventinequality and negative consequences of inequality. CONCLUSIONThroughout the history of daily life, peoplehave lived in class differences. It has been social and economic at the sametime. As a result these classes differences reveal the income inequality inpublic.
We can see great examples of that in history . For instance French Revolution. In the beginning it can be seem as a political revolution but the fact was hugeincome inequality on between regime , bourgeois and folk. As a mention incomeinequality can create huge problems for people and it reduces economic growth .on the other hand in this research , the avoiding is clear for that.