IDEAS home Printed from https://ideas.repec.org/a/eee/streco/v74y2025icp116-128.html

If inequality is an economic choice, what is the relationship between inequality and growth?

Author

Listed:
  • Duong, Khanh

Abstract

This study provides evidence that when economic development – encompassing both growth and inequality – is treated as an objective that benefits the entire economy rather than specific agents, growth and inequality can coexist and have a positive relationship. While some may be concerned that such a trade-off inevitably leads to extreme inequality that could hinder future growth, the findings indicate that this trade-off occurs within controlled bounds of inequality, as measured by a Gini index below 28. Although extending growth might suggest an increase in inequality, practical constraints and the inherent limits to growth prevent such extremes. The analysis utilises multi-objective optimisation, conceptualising both inequality and growth as policy objectives. The model identifies optimal strategies that maximise growth and minimise inequality within the observed range of GDP per capita, with deviations from these optimal choices interpreted as penalties reflecting non-economic factors. The results further support the hypothesis of a natural rate of subjective inequality.

Suggested Citation

  • Duong, Khanh, 2025. "If inequality is an economic choice, what is the relationship between inequality and growth?," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 116-128.
    • Handle: RePEc:eee:streco:v:74:y:2025:i:c:p:116-128
    DOI: 10.1016/j.strueco.2025.02.014
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0954349X25000311
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.strueco.2025.02.014?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
    2. Benedikt Fuchs & Stefan Thurner, 2014. "Behavioral and Network Origins of Wealth Inequality: Insights from a Virtual World," PLOS ONE, Public Library of Science, vol. 9(8), pages 1-13, August.
    3. Daniel Halter & Manuel Oechslin & Josef Zweimüller, 2014. "Inequality and growth: the neglected time dimension," Journal of Economic Growth, Springer, vol. 19(1), pages 81-104, March.
    4. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    5. Martin Ravallion, 2018. "Inequality and Globalization: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 56(2), pages 620-642, June.
    6. Khanh Duong & Eoin Flaherty, 2023. "Does growth reduce poverty? The mediating role of carbon emissions and income inequality," Economic Change and Restructuring, Springer, vol. 56(5), pages 3309-3334, October.
    7. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2020. "Heterogeneity and Persistence in Returns to Wealth," Econometrica, Econometric Society, vol. 88(1), pages 115-170, January.
    8. Cojocaru, Alexandru, 2014. "Fairness and inequality tolerance: Evidence from the Life in Transition Survey," Journal of Comparative Economics, Elsevier, vol. 42(3), pages 590-608.
    9. David de la Croix & Matthias Doepke, 2003. "Inequality and Growth: Why Differential Fertility Matters," American Economic Review, American Economic Association, vol. 93(4), pages 1091-1113, September.
    10. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 65-94.
    11. Roland Bénabou, 1996. "Inequality and Growth," NBER Chapters, in: NBER Macroeconomics Annual 1996, Volume 11, pages 11-92, National Bureau of Economic Research, Inc.
    12. Daron Acemoglu & Pascual Restrepo, 2019. "Automation and New Tasks: How Technology Displaces and Reinstates Labor," Journal of Economic Perspectives, American Economic Association, vol. 33(2), pages 3-30, Spring.
    13. Shruti Agrawal & Nidhi Sharma & Karambir Singh Dhayal & Luca Esposito, 2024. "From economic wealth to well-being: exploring the importance of happiness economy for sustainable development through systematic literature review," Quality & Quantity: International Journal of Methodology, Springer, vol. 58(6), pages 5503-5530, December.
    14. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March.
    15. Torben M Andersen & Jonas Maibom, 2020. "The big trade-off between efficiency and equity—is it there?," Oxford Economic Papers, Oxford University Press, vol. 72(2), pages 391-411.
    16. Florence Jaumotte & Subir Lall & Chris Papageorgiou, 2013. "Rising Income Inequality: Technology, or Trade and Financial Globalization?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(2), pages 271-309, June.
    17. Lambert, Peter J. & Millimet, Daniel L. & Slottje, Daniel, 2003. "Inequality aversion and the natural rate of subjective inequality," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 1061-1090, May.
    18. Davide Furceri & Jonathan D Ostry, 2019. "Robust determinants of income inequality," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 35(3), pages 490-517.
    19. Atolia, Manoj & Chatterjee, Santanu & Turnovsky, Stephen J., 2012. "Growth and inequality: Dependence on the time path of productivity increases (and other structural changes)," Journal of Economic Dynamics and Control, Elsevier, vol. 36(3), pages 331-348.
    20. Galbraith, James K., 2016. "Inequality: What Everyone Needs to Know," OUP Catalogue, Oxford University Press, number 9780190250478.
    21. Mr. Barry J. Eichengreen & Mr. Balazs Csonto & Ms. Asmaa A ElGanainy & Zsoka Koczan, 2021. "Financial Globalization and Inequality: Capital Flows as a Two-Edged Sword," IMF Working Papers 2021/004, International Monetary Fund.
    22. Lilian Rolim, 2024. "Inflation, Unemployment, and Inequality: Beyond the Traditional Phillips Curve," Review of Political Economy, Taylor & Francis Journals, vol. 36(4), pages 1381-1396, October.
    23. Stefanie Stantcheva, 2022. "Inequalities in the times of a pandemic," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 37(109), pages 5-41.
    24. Asteriou, Dimitrios & Dimelis, Sophia & Moudatsou, Argiro, 2014. "Globalization and income inequality: A panel data econometric approach for the EU27 countries," Economic Modelling, Elsevier, vol. 36(C), pages 592-599.
    25. Andrew G. Berg & Jonathan D. Ostry, 2017. "Inequality and Unsustainable Growth: Two Sides of the Same Coin?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(4), pages 792-815, November.
    26. Balietti, Stefano & Riedl, Christoph, 2021. "Incentives, competition, and inequality in markets for creative production," Research Policy, Elsevier, vol. 50(4).
    27. Stanley L. Engerman & Kenneth L. Sokoloff, 2005. "Colonialism, Inequality, and Long-Run Paths of Development," NBER Working Papers 11057, National Bureau of Economic Research, Inc.
    28. Katja Freistein & Bettina Mahlert, 2016. "The potential for tackling inequality in the Sustainable Development Goals," Third World Quarterly, Taylor & Francis Journals, vol. 37(12), pages 2139-2155, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ms. Valerie Cerra & Mr. Ruy Lama & Norman Loayza, 2021. "Links Between Growth, Inequality, and Poverty: A Survey," IMF Working Papers 2021/068, International Monetary Fund.
    2. Grabiella Berloffa & Maria Luigia Segnana, 2004. "Trade, inequality and pro-poor growth: Two perspectives, one message?," Department of Economics Working Papers 0408, Department of Economics, University of Trento, Italia.
    3. Baselgia, Enea & Foellmi, Reto, 2022. "Inequality and Growth: A Review on a Great Open Debate in Economics," CEPR Discussion Papers 17483, C.E.P.R. Discussion Papers.
    4. Blotevogel, Robert & Imamoglu, Eslem & Moriyama, Kenji & Sarr, Babacar, 2022. "Income inequality measures and economic growth channels," Journal of Macroeconomics, Elsevier, vol. 72(C).
    5. Andrew Berg & Jonathan D. Ostry & Charalambos G. Tsangarides & Yorbol Yakhshilikov, 2018. "Redistribution, inequality, and growth: new evidence," Journal of Economic Growth, Springer, vol. 23(3), pages 259-305, September.
    6. Isaac Ehrlich & Jinyoung Kim, 2007. "The Evolution of Income and Fertility Inequalities over the Course of Economic Development: A Human Capital Perspective," Journal of Human Capital, University of Chicago Press, vol. 1(1), pages 137-174.
    7. Arrigoni, Simone, 2024. "Who gets the flow? Financial globalisation and wealth inequality," Journal of Macroeconomics, Elsevier, vol. 81(C).
    8. Sangheon Lee & Megan Gerecke, 2015. "Economic development and inequality: revisiting the Kuznets curve," Chapters, in: Janine Berg (ed.), Labour Markets, Institutions and Inequality, chapter 2, pages 39-64, Edward Elgar Publishing.
    9. Han, Minsoo & Pyun, Ju Hyun, 2021. "Markups and income inequality: Causal links, 1975-2011," Journal of Comparative Economics, Elsevier, vol. 49(2), pages 290-312.
    10. Vuković, Danijela Lazović & Damijan, Jože P., 2025. "Drivers of income inequality in OECD countries: Testing the Milanovic's TOP hypothesis," Structural Change and Economic Dynamics, Elsevier, vol. 74(C), pages 416-440.
    11. Can Sever & Emekcan Yücel, 2025. "Electoral cycles in inequality," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 23(2), pages 433-456, June.
    12. Duong, Khanh & Nguyen Phuc Van, 2023. "Innovation and Globalization: Benefactors or Barriers to Inclusive Growth?," GLO Discussion Paper Series 1357, Global Labor Organization (GLO).
    13. Wu, Jiabin, 2016. "Political Institutions and Preference Evolution," MPRA Paper 69597, University Library of Munich, Germany.
    14. Jakub Bartak & Łukasz Jabłoński, 2020. "Inequality and growth: What comes from the different inequality measures?," Bulletin of Economic Research, Wiley Blackwell, vol. 72(2), pages 185-212, April.
    15. Aribah Aslam & Amjad Naveed & Ghulam Shabbir, 2021. "Is it an institution, digital or social inclusion that matters for inclusive growth? A panel data analysis," Quality & Quantity: International Journal of Methodology, Springer, vol. 55(1), pages 333-355, February.
    16. Rajaguru, Gulasekaran & Srivastava, Sadhana & Sen, Rahul & Mukhopadhaya, Pundarik, 2023. "Does globalization drive long-run inequality within OECD countries? A guide to policy making," Journal of Policy Modeling, Elsevier, vol. 45(3), pages 469-493.
    17. Roxana Gutiérrez-Romero & Luciana Méndez-Errico, 2017. "Does Inequality Foster or Hinder the Growth of Entrepreneurship in the Long Run?," Research on Economic Inequality, in: Research on Economic Inequality, volume 25, pages 299-341, Emerald Group Publishing Limited.
    18. Islam, Md. Rabiul & McGillivray, Mark, 2020. "Wealth inequality, governance and economic growth," Economic Modelling, Elsevier, vol. 88(C), pages 1-13.
    19. Claudia Suárez‐Arbesú & Nicholas Apergis & Francisco J. Delgado, 2023. "Club convergence and factors of income inequality in the European Union," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3654-3666, October.
    20. Campos, Nauro F. & De Grauwe, Paul & Ji, Yuemei, 2025. "Structural reforms and economic performance: the experience of advanced economies," LSE Research Online Documents on Economics 120870, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:streco:v:74:y:2025:i:c:p:116-128. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/525148 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.