Does income inequality impact economic growth? : Evidence from Eastern European economies

Eastern Europe’s post-socialist economies still experience both relatively high inequality and the need for faster growth, when compared to Western Europe. Using annual data for 16 such countries between 1995 and 2019, this paper examines the effect income inequality has on growth. Random-effects panel regressions relate GDP-per-capita growth to the Gini index and three additional measures of inequality. While the Gini index regression is insignificant and suggests that inequality has no impact on growth, some additional tail-focused measures show marginally significant, but very small effects. Therefore, the results suggest that inequality-targeting reforms, such as progressive taxation or broader access to education, are unlikely to decrease growth.