Inequality and Growth in Tunisia: New Evidence from Threshold Regression

This paper uses a threshold regression model to test for threshold effect in the relationship between income inequality and growth for Tunisia over the period 1980–2019. A robustness analysis is performed by considering different income inequality measures. Furthermore, we examine the Kuznets hypothesis. Our findings show evidence of a nonlinear relationship between income inequality and growth in Tunisia. More precisely, for the Gini index and the income share of the highest 1% of the population, inequality has an insignificant effect on economic growth below the threshold value while above the threshold value, inequality reduces the growth. Meanwhile, for the income share of the lowest 40% of the population and the income share of the lowest 50% of the population, inequality has an insignificant effect on economic growth above the threshold value while below the threshold value, inequality promotes the growth. Our results show that a better income distribution supports economic growth while an unequal income disparity reduces economic growth. For the Kuznets hypothesis, the evidence is mixed and depends on the inequality indicator employed.