An Assessment of Impact of Income Inequality on Sustainable Economic Growth in the Context of Saving

Abstract

Income inequality can possess a different impact on economic growth as it can both stimulate and slow down economic growth. The stimulating effect of income inequality reveals via saving. Wealthier people dispose the capability save more and devote a larger portion of their saving to investments and technological developments. However, environmental and social perspectives shall be also taken into consideration when aiming for a sustainable development. Therefore, relatively more wealthy people shall invest into environmental friendly projects and R&D. This paper considers the effects of income inequality on sustainable economic growth in the context of saving for the EU-25 countries during the period of 2005 – 2013. In the empirical research countries have been divided into 4 clusters. Impact of interaction between income inequality, savings, economic growth, spending on social security to domestic material consumption, renewable energy in gross final energy consumption, municipal waste generation, municipal waste recycling, ammonia and greenhouse gas emissions was estimated to be insignificant in all four country cluster groups. Interaction between income inequality, savings, economic growth, spending on social security was estimated to increase emission of sulfur dioxides and nitrogen oxides, but reduced amount of gross domestic energy consumption.  The interaction is estimated to increase emission of nitrogen oxides in the country cluster groups with relatively low income level and different relationship between income and economic growth levels.

DOI: http://dx.doi.org/10.5755/j01.ee.28.3.17438