Income inequality hinders economic growth, widening the gap between rich and poor.
The article explores how income inequality affects economic growth. It presents two models: one showing how policies like taxes and public schooling can impact savings and investment, and another showing how conflicts can hinder property rights and accumulation. The research suggests that the economy grows slower when interest groups have more power and when there is a big gap between rich and poor. The key is not just income inequality, but also inequality in earnings and political influence. The study reviews both theoretical and empirical evidence on these issues and raises the question of whether countries with different levels of inequality will eventually converge.