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An appropriate test of the Kuznets hypothesis

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  • Ho-Chuan (River) Huang
  • Yi-Chen Lin
  • Chih-Chuan Yeh

Abstract

The Kuznets hypothesis, that is, inequality first rises and then falls as the economy advances, is often tested by regressing inequality on income and its squared term (along with other determinants). Findings of a significantly negative coefficient on income and a significantly positive estimate on the quadratic term are commonly taken as evidence supporting the inverted-U Kuznets curve. Although intuitive, Lind and Mehlum (2010) argued that the conventional approach is flawed and proposed an appropriate test for a U-shaped association. We revisit the validity of the Kuznets hypothesis by applying the novel testing strategy of Lind and Mehlum (2010) to annual US data over the period 1917 to 2007. Inconsistent with the Kuznets hypothesis, the test results overwhelmingly reject the combined null hypothesis of an inverted-U or monotone relationship in favour of a U-shaped linkage between income inequality and economic development. Moreover, the results are robust to changes in inequality measures and functional specifications.

Suggested Citation

  • Ho-Chuan (River) Huang & Yi-Chen Lin & Chih-Chuan Yeh, 2012. "An appropriate test of the Kuznets hypothesis," Applied Economics Letters, Taylor & Francis Journals, vol. 19(1), pages 47-51, January.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:1:p:47-51
    DOI: 10.1080/13504851.2011.566172
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    Cited by:

    1. Wannaphong Durongkaveroj, 2024. "Structural transformation and inequality: Does trade openness matter?," The World Economy, Wiley Blackwell, vol. 47(6), pages 2631-2663, June.
    2. Kemal ERKİŞİ & Turgay CEYHAN, 2020. "The Relationship Between Economic Growth and Income Inequality: A Panel Data Analysis," Sosyoekonomi Journal, Sosyoekonomi Society, issue 28(43).
    3. İsmail Hakkı İşcan & Tuğba Demirel, 2024. "The Relationship Among Trade Openness, Financial Development and Economic Growth Indicators and Income Distribution Inequality: Testing the Kuznets, Financial Kuznets, and Stolper-Samuelson Hypotheses," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 11(1), pages 1-18, January.
    4. Umeair Shahzad & Fukai Luo & Jing Liu, 2023. "Debt financing and technology investment Kuznets curve: Evidence from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 751-765, January.
    5. Shinhye Chang & Matthew W. Clance & Giray Gozgor & Rangan Gupta, 2019. "A Reconsideration of Kuznets Curve across Countries: Evidence from the Co-summability Approach," Working Papers 201970, University of Pretoria, Department of Economics.
    6. Saleem Khan & Salman Azad Khan & Muhammad Tariq, 2016. "The Analysis of Income Inequality and Economic Growth Relationship: Evidence from Pakistan9apos9s Data," Global Economics Review, Humanity Only, vol. 1(1), pages 24-35, December.
    7. Mahmut Zeki Akarsu & Orkideh Gharehgozli, 2024. "Inequality and inflation relationship in middle-income countries," Journal of Computational Social Science, Springer, vol. 7(1), pages 995-1018, April.
    8. Adnen Ben Nasr & Mehmet Balcilar & Seyi Saint Akadiri & Rangan Gupta, 2019. "Kuznets Curve for the US: A Reconsideration Using Cosummability," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 142(2), pages 827-843, April.
    9. J. N. Lye and J. G. Hirschberg, 2012. "Inverse Test Confidence Intervals for Turning points: A," Department of Economics - Working Papers Series 1160, The University of Melbourne.
    10. Wang, Jying-Nan & Liu, Hung-Chun & Hsu, Yuan-Teng, 2024. "A U-shaped relationship between the crypto fear-greed index and the price synchronicity of cryptocurrencies," Finance Research Letters, Elsevier, vol. 59(C).

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