Income inequality and economic growth

We develop an analytical framework to investigate some plausible channels t hat income inequality affects economic growth. Our empirical study conclude s that income inequality has significant negative effect on the rate of GDP growth. Among the channels suggested by recent literature, we find that th e most important one is the transfer channel while the least important one is the human capital channel. However, the direct impact of income inequali ty on the rate of productivity growth accounts for more than 55 percent of its overall total effect. This indicates that the effects of income inequal ity on economic growth are much more complicated than what we have perceive d and modeled.