Economic Growth and its Impact on Income Inequality : A panel analysis across the 50 states of the U.S. (2006 – 2023)

This study examines the relationship between economic growth and income inequality across all the 50 states of the United States during the period from 2006 to 2023 with a focus on how GDP growth influences the Gini coefficient, a measure of income disparity. Our research study is grounded in theoretical frameworks such as the Kuznets Curve, Trickle-down effects and Piketty’s capital concentration theory. Our research used a panel data fixed-effects model to account for state specific characteristics and time-dependent changes. The findings show a statistically significant positive relationship between GDP growth and income inequality which thereby suggests that an economic expansion tend to disproportionately benefit the higher-income groups which has proven to be contrary to the Kuznets original hypothesis. The control variables such as education levels and minimum wage reveal significant but divergent effects on income inequality. This study also highlights the dominance of unobserved state level determinants in shaping inequality outcomes, and it underscores the necessity of localized policy interventions by policy makers. These results challenge the conventional growth-equity suppositions as well as further emphasize the importance of complementary redistributive policies such as stronger progressive taxation and labor market reforms to be able to better mitigate income inequality and at the same time fostering sustainable growth. Our research contributes to the existing literature by addressing these missing gaps in the state level analysis thereby providing policymakers with more nuanced insights to be able to balance economic development with a more equitable income distribution.