INCOME DISTRIBUTION, GROWTH AND FINANCIAL DEVELOPMENT A Cross Countries Analysis

Income inequality is an important economic issue faced by most of thedeveloped and developing countries. Many attempts have been made to identify alink between economic growth and income inequality in the past. However, theliterature is not conclusive about the relationship between economic developmentand income inequality. This study attempts to analyze the factors responsible forincome inequality among the different groups of countries at different stages ofeconomic growth and test the Kuznet’s hypothesis by breaking panel of countriesinto four sub-panels; low income, lower middle income, upper income and higherincome countries. In this study a larger set of variables are utilized forinvestigating the cross country differences in income inequality. The results of thestudy find the evidence of the existence of inverted U-shaped hypothesis forincome growth. Financial development reduces the inequalities in incomedistribution irrespective of stage of development, and hence negates the invertedU-shaped relationship between inequality and financial development.