Does income inequality hurt economic growth - Term Paper Example

The essay further applies the Lorenz Curves model in investigating income distribution in Nigeria and KSA. A deep Lorenz curve implies high level of income inequality in a country. That is the case of Nigeria and KSA. Over the past generations, concern about rising or high-income inequality curtailed primarily from a credence that it is one-sided. In the contemporary world, however, the sources of concern have shifted. The leading concern now is whether income inequality can hurt economic growth.

Similarly, income inequality can also have harmful effects on the outcomes people value, such as education, health, happiness, democracy and many other elements that have direct impacts on economic growth. Current studies indicate that income inequality does not only affect people at the bottom but also affects the nation as a whole. The studies explain that the growing income inequality may be the reason that inhibits economies from recovering from the excessive recession. As per a report by OECD, inequality slackens GDP growth through hindering the accumulation of human capital.

This trend hurts long-term economic prospects, as well as educational outcomes for persons on the lesser section of a nation’s income ladder. In its recommendation, the report suggests a check-up against this propensity by capitalizing in education and health (OECD, 2015, p. 1). It also calls for a more direct method of assistance to help reduce inequality without hurting economic growth. Furthermore, OECD established that direct cash transfers may not slow down the growth of GDP when these policies are smartly designed, as well as implemented.

Depiction based on harmonised data that cover the OECD nations over the past three decades, the econometric analysis submits that income inequality possesses a negative, as well as statistically significant influence on succeeding growth. In specific, the greatest issue is the breach between small income households and the better