Income Inequality and Economic Growth: An empirical investigation of the European Union 1991–2019

Sammanfattning: This thesis examines the effect of income inequality on economic growth within the European Union (EU) during the period 1991–2019. For the empirical investigation, the analysis includes four measures of income inequality. The data points for these measures have been collected from the World Income Inequality Database (WIID). The regression procedure is carried out using panel data with fixed effects, including 150 observations from 25 countries in the EU. The results in this thesis find no significant effect of income inequality on economic growth when controlling for a single measure of inequality. However, the results suggest significant effect on the growth rate when the inequality variables are included together. When included jointly, income inequality in bottom of the income distribution has significant negative effect on the growth rate. For the same regression procedure, the ratio of the top and bottom decimal of the income distribution has significant positive effect on the growth rate. Implications from these results suggest income inequality should be analysed with complementary measures. This would enable a more comprehensive observation of trends in income inequality as well as its potential effects on economic growth.