The voting model explains the redistribution and taxation relationship (Alesina & Rodrik, 1994; Perotti, 1993; Persson & Tabellini, 1994). In democratic societies, the median voter determines the amount of tax based on motsepe investment platform income. 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. On the other hand, Paul and Verdier (1996) object to the political economy approach on the ground that high inequality does not always require a high rate of redistributable taxation, and there may be conditions in which redistribution is not detrimental to economic growth.

2 The Effect of Income Inequality and Channel Variables on Economic Growth

• Secondly, income inequality promotes economic growth through innovation and R&D incentives.
• In countries with relatively high income and inequality due to the increase in the income of the wealthiest population, inequality positively affects growth through fiscal policy.
• In less developed countries, as the contribution of physical capital to growth is more significant than human capital, inequality positively affects economic growth (in line with the Classical approach).
• Although the findings provide evidence that high inequality adversely affects economic growth, it can be stated that this inference cannot be generalized when countries’ income levels are taken into account.

The relationship between inequality and redistribution in these countries is significantly positive (except column 6). These results show that the relationship depends on the development level of the countries, and the first stage of the political economy channel is supported at UHC (Gründler & Scheuermeyer, 2018). The effect of income inequality on fertility is significantly positive in all estimates, so the prerequisite for the validity of the bi fertility channel supports the Kremer and Chen (2002) study for both country groups.

Method and Dataset

For both indicators, it can be stated that political instability affects economic growth negatively, as in LLMC, so the increase in political unrest causes waste of resources. When interpreted together with the channel results in Table 9, the rise in income inequality in these countries increases political instability, and the increasing political instability harms economic growth. While the effect of inequality on redistribution is positive, the effect of redistribution on economic growth is not clear. However, in models https://istorepreowned.co.za/ where the redistribution is significant (columns 4 and 4a), the coefficient is positive, similar to LLMC.

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

Contrary to expectations, it is observed that the effect of inequality on the political stability https://satrix.co.za/ index is positive in all estimations. The effect of inequality on the redistribution variable is insignificant except for the pooled OLS estimate. These results indicate that inequality in low-income countries does not significantly affect redistribution as theoretically stated (Le & Nguyen, 2019; Odedokun & Round, 2004).

Literature Review

The effect of inequality and credits on education is significantly negative (except column 2) and positive (except columns 6 and 10), respectively. These results provide evidence of the validity of the first stage of the credit markets imperfections channel. On the other hand, the effect of inequality on human capital (columns 1–4) shows that the positive channel stated in theory does not https://deriv.com/ apply here as in LLMC. Furthermore, as in LLMC, the tertiary as the dependent variable is used to examine credit markets defects and human capital channels. Results for patent are similar to LLMC; contrary to theory, the effect of inequality on the patent is significantly negative in all estimates. Therefore, income inequality does not support innovative activities contrary to expectations, but the same interpretation cannot be made for the saving rate, and the results are different from LLMC.