| Kuznets's inverted U-curve hypothesis regarding the relationship between economic development and income inequality has not been rigorously tested due to the unavailability and quality of data, problems with sample composition, and concept formulation. Likewise, the relationships between institutional factors and income inequality have been largely untested. This study has made an attempt to address these concerns by employing a more sophisticated approach and updated and more consistent data for a relatively long time span.;In terms of methodological issues in testing the hypotheses, this study differs from previous studies mainly in the following ways: first, economic development is studied as a multiple-dimension concept and then measured by both real gross domestic product per capita and physical quality of life index; second, measurement errors of indicators for income inequality and economic development, resulting primarily from income concept variations among countries, are incorporated into the LISREL measurement model; third, a blend of time-series and cross-country approaches is employed.;The research results strongly support the inverted U-curve hypothesis. This finding suggests that as economic development takes place, income inequality increases first and then decreases after it reaches a turning point. The assessment of the relationship does not explain what brings about this change.;Since it is neither intuitively nor deductively obvious why economic development alone should promote income equality, the second part of this study introduces political, demographic and sociological factors for a fuller explanation of the relationships between economic development and income inequality. The study shows that population growth, economic growth, and primary education increase income inequality while health and secondary education tend to decrease it. However, it fails to find support for the hypotheses that freedom, political rights, and civil liberties are negatively associated with income inequality.;It is concluded from all evidence that economic development is a necessary but not a sufficient condition for reduction of income inequality. Economic and non-economic measures have to complement each other to translate economic development into more equitable income distribution. |
