Transformations  in
Business & Economics

AN ASSESSMENT OF THE IMPACT OF INCOME INEQUALITY ON ECONOMIC GROWTH
Remigijus Ciegis, Aidas Dilius

ABSTRACT. The aim of the research is to assess the impact of income inequality on economic growth. The research objectives: 1) To theoretically substantiate the transmission channels of the impact of income inequality on economic growth. 2) To empirically test the possibilities to apply the proposed models in the groups of EU states divided according to the level of income inequality and the level of income per capita. The results are grounded on the panel data of 28 EU countries over the period of 1995-2014. It was found out that increasing income inequality makes an ambiguous impact on economic growth through different transmission channels: the credit-market imperfections channel and the fiscal policy channel.
As estimated in the EU countries, income inequality stimulated economic growth in the groups of the countries attributed to a higher level of income inequality and a different level of country's development. In the groups of the countries attributed to a lower level of income inequality and a different level of country's development, income inequality slowed down economic growth. 

KEYWORDS:  income inequality, economic growth, fiscal policy.

JEL classification:  D63, O40, E62.