Question

what are the effects of leveling income inequality on developing states in the 21st century?

(answer in 200 word paragraph)

Answer 1

Our empirical analysis shows that for the average country in the sample during 1970-2010, increases in income inequality reduce GDP per capita.

Specifically, we find that, on average, a 1 percentage point increase in the Gini coefficient reduces GDP per capita by around 1.1% over a five-year period; the long-run (cumulative) effect is larger and amounts to about -4.5%.

To be clear, this finding implies that, on average, increases in the level of income inequality lead to lower transitional GDP per capita growth. Increases in the level of income inequality have a negative long-run effect on the level of GDP per capita. We document the robustness of this result to alternative measures of income inequality, alternative income inequality data sources, splitting the sample between pre- and post-1990 periodEffects of income inequality, researchers have found, include higher rates of health and social problems, and lower rates of social goods, a lower population-wide satisfaction and happiness and even a lower level of economic growth when human capital is neglected for high-end consumption. The impact of rising inequality on societies is also drawing concern: “The social compact is starting to unravel in many countries”, OECD Secretary-General Angel Gurría has said. “Uncertainty and fears of social decline and exclusion have reached the middle classes in many societies.”
Inequality is also a key issue in education. Education can play a powerful role in providing opportunities for people from all sorts of backgrounds, but it can also reinforce existing economic divisions in society. The OECD’s PISA programme has shown that some countries’ education systems do a much better job than others in helping students from poorer families achieve excellence. Inequality has other impacts on societies, too, including reducing mobility and, some argue, fostering crime and harming people’s health.