Transmission Channels of Effects of Inequality in Income Distribution on Economic Growth in the Group of Countries with Lower Levels of Inequality and Economic Development than Average - Suggestions for Vietnam

Abstract

Using a fixed effects model for processed panel data to increase data homogeneity, the article found that in the group of countries with lower levels of inequality and economic development than average, increased income inequality will stimulate economic growth. This positive effect is the combined result of many different effect transmission channels, of which 6 channels were found including fiscal policy channel, imperfect capital market channel, consumer behavior channel, labor motivation channel, access to education channel and domestic demand for goods and services channel. The article has not found evidence about socio-political instability channel, fertility decision channel, investment savings channel and access to health service channel. From the estimation results, the study has proposed a number of solutions for Vietnam towards harmoniously resolving the relationship between income inequality and economic growth.