Relation between income inequality and economic growth : Empirical study of the OECD-countries

The existence of income inequality between individuals in a society is a constant source of debate. There are many ways in which it is conceivable that the income inequality in a country can affect economic growth. The driving force behind, for example, undergoing higher education may be that it is expected to provide a future higher income. If the wage gap between unskilled and educated labor is too small, this drive can be lost and the level of education in the country will be low, which may lower the possibility of more efficient production and higher future economic growth. The purpose of this thesis is to investigate the effect of income inequality on economic growth in OECD-countries. The thesis also aims to investigate why this effect arises by analyzing whether the income distribution has an impact on the growth savings ratio, population growth, human capital and productivity. This is conducted with a panel data approach on the OECD countries with data over the period 1990-2010.