Wealth Inequality and Economic Growth

From the perspective of the increasing marginal tendency toward tax avoidance, this paper proves that groups with higher wealth levels possess stronger willingness and capacity for tax avoidance, which continuously widens the wealth gap. As wealth inequality keeps worsening, it is bound to exert profound impacts on economic growth. This paper further sorts out three transmission channels through which wealth inequality affects economic growth: increasing returns to scale of physical capital investment, erosion of fiscal tax bases, and accumulation of per capita human capital. These three channels jointly generate a nonlinear impact of wealth inequality on economic growth. Based on an unbalanced cross-country panel dataset, this paper adopts the income Gini coefficient lagged by 20 years as the instrumental variable for the wealth Gini coefficient, and incorporates core variables involved in the theoretical model for empirical research. The empirical results are consistent with theoretical deductions. Unlike existing studies that only conclude a negative correlation between the two variables, this paper identifies an inverted U-shaped effect of wealth inequality on economic growth, offering new considerations for policy design by social planners.