On testing Kuznets' economic growth hypothesis

Abstract

Kuznets (1955) hypothesizes that during economic growth, per capita income inequality first increases, reaches a peak and then declines. We test this relationship for 36 less developed countries (LDCs) using a regression model, with quadratic functional form, relating income inequality to income. Estimation using robust errors to correct for heteroscedasticity yields results which support Kuznets's hypothesis. Inequality is greatest at about a level of real GDP (1980 international prices) of US$2000/head.