Economic growth and income inequality: the case of the US

Purpose – The purpose of this study is to examine the impact of income inequality on economic growth in the US. Design/methodology/approach – This paper applies the endogenous growth model including human capital and technological progress. The generalized autoregressive conditional heteroskedasticity (GARCH) technique is applied to estimate regression parameters. The number of patents granted is chosen to measure technological progress. Percentage of people 25 years old and over who have completed 4 years of college or more is selected to measure human capital. Findings – The findings show that a higher Gini index hurts economic growth. Economic growth has a positive relationship with the growth in civilian employment, investment spending, technological progress, and human capital. When three other indicators of income inequality are considered, similar conclusions can be reached. Research limitations/implications – A major implication is that a deterioration of inequality would be harmful to economic growth. Originality/value – Major contributions of the paper are to consider human capital in the model and different measures of inequality in empirical work.