Sustainable Development and Income Inequality

Sammanfattning: Income disparities and planetary boundaries present worldwide threats to social stability and security. An extensive body of literature studies the determinants of income inequality. Generally, economic growth and environmental sustainability are found to have moderating effects on income inequality. Adjusted net savings (ANS) is a composite indicator measuring sustainable development assessing the wealth of nations in a more comprehensive manner than the gross domestic product does. While ANS’ relationship with welfare and wellbeing experiences growing research interest, its relationship with income inequality remains unexplored. This is surprising, as research suggests that addressing economic, environmental, and social aspects together is paramount to achieving sustainability. This thesis combines these aspects by investigating the relationship between ANS and income inequality. Analysing panel data for a host of over 50 countries with observations between 1978 and 2018, the long-term association between ANS and income inequality is scrutinized. Gross national income and net national savings serve as instruments for real ANS per capita. The findings indicate that ANS is positively related to income inequality. The relationship does not differ by state of economic development and is robust to alternative specifications. The results highlight the key role policy makers play in combining increases in sustainable development with decreasing income inequalities.