An assessment of impact of income inequality on sustainable economic growth in the context of saving

Abstract

Income inequality projects a different impact on economic growth as it can both stimulate and slow down economic growth. The stimulating effect of income inequality is revealed via saving. Specifically, wealthy social classes dispose the capability to save more and devote a larger portion of their saving to investments and technological developments. However, environmental and social perspectives shall be taken into consideration when aiming for a sustainable development. 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. The empirical research of this study is done using open code software package Gretl and working with panel data. Based on the relationship between income inequality ratio, economic growth and GDP per capita, countries have been divided into 4 clusters. Empirical results support impact of reciprocal action among 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 to be insignificant in all four country cluster groups. Reciprocal action among income inequality, savings, economic growth, and spending on social security was estimated to increase emission of sulfur dioxides and nitrogen oxides, but reduced the amount of gross domestic energy consumption. The reciprocal action 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.