INCOME-DISTRIBUTION AND GROWTH - THE KUZNETS HYPOTHESIS REVISITED

This study develops a general equilibrium model in which the evolution of income inequality and output conforms with the Kuznets hypothesis. The paper presents a novel endogenous mechanism that generates the in verted-U relation between income inequality and per capita output, and captures the reciprocal influence between the two. Unlike previous at tempts for a comprehensive theoretical modelling of this phenomenon, t he evolution of the economy is consistent with another important empir ical observation: namely, that output growth is accompanied in the ear ly stages of development by a widening wage differential between skill ed and unskilled labour, whereas in a later stage this wage differenti al declines.