# Hypothesis Of Income Inequality

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Kuznets Hypothesis of income and inequality in context of Indian growth experience
In economics, a Kuznets curve graphs the hypothesis that as an economy develops, market forces first increase and then decrease economic inequality. The hypothesis was first advanced by economist Simon Kuznets in the 1950s and '60s.
One explanation of such a progression suggests that early in development, investment opportunities for those who have money multiply, while an influx of cheap rural labour to the cities holds down wages. Whereas in mature economies, human capital accrual (an estimate of cost that has been incurred but not yet paid) takes the place of physical capital accrual as the main source of growth; and inequality slows growth by lowering education
A natural specification in panel data with a very general form can be hypothesized as:
Giniit 0 1Yit 2Yit i t uit , i=1,……, N; t=1,….,T, where, Yit denotes ln(MPCE) andi andt are the state and time specific unobserved heterogeneity effects, respectively; and uit is the disturbance term.

Understanding the Gini coefficient :-
The Gini index or Gini coefficient is a statistical measure of distribution developed by the Italian statistician Corrado Gini in 1912. It is often used as a gauge of economic inequality, measuring income distribution or, less commonly, wealth distribution among a population. The coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect equality and 1 representing perfect inequality. Values over 1 are theoretically possible due to negative income or wealth.
A country in which every resident has the same income would have an income Gini coefficient of 0. A country in one resident earned all the income, while everyone else earned nothing, would have an income Gini coefficient of 1.