Question

Describe the Kuznets' inverted U hypothesis. Does this hypothesis receive strong support from empirical studies? explain

Answer 1

According to the Kuznet's inverted U hypothesis, when the country has a very low economic growth, the level of inequality in the society is low as most people are poor, as the economic growth increases, the inequality also starts increasing and as the economic growth reaches a certain level, beyond that limit inequality decreases . Therefore, the plot between economic growth and inequality is in the shape of an inverted U known as the Kuznet's curve.

Empirically it is seen that in the developed nations, for example the US, inequality increased with increase in economic growth and even now when growth has increased phenomenally, the share of wealth of the richest has been increasing must faster than that of the poor, so inequality is also increasing consistently. So, the Kuznets hypothesis has not been supported by empirical studies.