Reducing economic inequality and promoting inclusiveness for sustainable economic growth

Abstract

In the article two approaches to economic inequality measurement (the decile dispersion ratio (DDR) and the Gini index) for the EU-27 member states are analyzed and the income inequality results, as a factor that influences inclusive and sustainable growth, are compared with the data on growth (GDP per capita) and actual individual consumption (AIC). The aim is to obtain evidence that a reduced income inequality is important for ensuring growth and, more specifically, an inclusive growth through a less concentrated distribution of income. At the end we draw conclusions on the relation between inequality and growth in the EU countries and how the mitigation of inequality can impact the inclusive growth, especially in the less developed EU member states. The results have shown that both DDR and AIC reflect a similar ranking of the EU member states regarding income inequality, with certain slight deviations. The comparison of the income inequality results with the data on GDP per capita and AIC proved that the relationship between growth and inequality is not clear-cut. Nevertheless, it is clear that the less developed EU member states which present the highest inequality show the lowest GDP per capita and AIC. At the same time, the more developed EU member states that have a moderate (controlled) income inequality present also a rather high economic performance. The results have also shown that, while in the less developed EU countries income inequality hinders growth, in certain developed EU countries income inequality might have a positive impact on growth. JEL: O40, O47, D63, E25, D31.