Abstract

The aim of this article is to examine how agriculture and non-agriculture growth and inflation affect income inequality. The multivariate panel data approach is used to examine the application of Kuznets hypothesis between income inequality and agriculture and non-agriculture growth and test the existence of nonlinear relationship between income inequality and inflation rate in a large sample of data collected for developed and developing countries. The Hodrick-Prescott (HP) filter is used to separate the cyclical component from the trend component of inflation rate and agriculture and non-agriculture growth. The results demonstrate a significant negative nonlinear relationship between income inequality and the HP filtered inflation rate squared in developed countries. The findings confirm the application of a ‘U-shaped’ of Kuznets curve between income inequality and agriculture growth and between income inequality and non-agriculture growth in developed countries. In addition, the results show Kuznets inverted ‘U-shaped’ curve between agriculture growth and income inequality, and Kuznets ‘U-shaped’ curve between non-agriculture growth and income inequality in developing countries.

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