Income inequality and its effect on economic growth and welfare: Is income inequality so bad after all?

Laura Neimetaite

Student thesis: Master thesis


Income inequality has a negative connotation attributed to it which empirical research, for the least, does not support. The aim of this paper was to evaluate the legitimacy of such a negative perception of income inequality by summarising findings of relevant academic literature in the field and identifying any general patterns between income disparities and economic development, which would confirm or deny the negative impact income inequality is claimed to have on economies and societies within them. The research was primarily focused on evaluating the relationship between income inequality and economic growth, while the evaluation of the relationship between income inequality and individual happiness also took place in order to form a full scaled understanding of the impact income disparities have. This way we tried to answer our research question of whether income inequality is so bad after all? Which answer is – no. Our research suggests that income inequality does not have as negative an impact as it is being portrayed, quite oppositely, a reasonable amount of income disparities increase productivity of economies, in turn raising their competitiveness in the global market place.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2014
Number of pages81