The Transmission Mechanisms And Welfare On The Interaction Of Income Distribution And Economic Growth: A Literature Review

Income distribution has been a major issue within the macroeconomic field. Classical economists argued the theory of distribution should be a key part of economic theories, such as Ricardo had asserted that political economics should pay more attentions to the distribution between various classes, which involved the production process.New classical economists inherited the traditional researches from the point of view of factors that was the functional allocation of factors, which has formed the basic contents of economics textbooks about factors of production theory. By the 1950s, the researches focused more on personal income distribution, the inequality among individuals, not the size distribution, concerning about the shift of the personal income distribution, using the Gini coefficient as the measurement. Moreover, the relationship between income inequality and economic growth had attracted more and more economists. Kuznets put forward the inverted "U" hypothesis between the two in this period. By the early 1970s, with the rational expectations revolution, by using theoretical approaches of representative persons, the interest about income inequality has declined. But by the late 1980s, with the rise of new growth theory, researches about the income distribution experienced a renaissance.Analysis shows that many research literatures since the 1950s, giving more focus on the inequality of income distribution and the relationship between economic growth, also the interaction conduction mechanism between the two. Studies on the relationshipBetween the two documents, are mainly around the Kuznets inverted "U" hypothesis, with the endeavor to find the existence of it. After numerous studies, more economists believe that the relationship on the inequality of income distribution and economic growth is not one-way direction, but they will show a positive "U", or non-rules relationships. For this, my paper has done the job to compare the classical literatures on the issue with recent studies, from the view of conclusions and research methods. The traditional literatures about the transmission mechanism between the inequality of income distribution and economic growth, have explored the theories of political-economic mechanism, concerning the decision-making procures and the theory for capital market, such as the earliest studies by Csldero and Chong etc. In the recent time, scholars have also proposed for the subjects of human capital mechanism, market scale mechanism and the mechanism of economic fluctuations and social stability. We also give comparison between the early and modern researches, with the conclusion that that researches about this issue tend to be diversified, and use more empirical methods.After exploring the relationship between income distribution and economic growth, also the interaction mechanisms the scholars turned to do the welfare evaluation between different income distribution states. The earlier economists tended to do the analysis in the framework of representative person, by adding the total individual utility functions to get the social welfare function. But later scholars such Serge Kolm, Atkinson and Amartya Sen etc, pointed out that the method had ignored heterogeneity among individuals, which took a conflict with the essence of distribution. They inclined to calculate the indexes, such the Lorenz curve, Gini coefficient and coefficient of poverty indicators, to give a quantitative evaluation, which provided the basis of further studies. This paper introduces the modern studies about this issue.