DETECTION OF INTER-STATE KUZNETS CYCLE THROUGH NEO-CLASSICAL AND NEO-KEYNESIAN PARADIGMS
Abstract
Kuznets hypothesis (1955, 1963) has established a link between inequality and average well-being at the level of economy. The hypothesis maintains that given a two-sector economy with not much inequality within sectors but different sectoral mean incomes, a continuous transfer of population from one sector to another will initially raise the aggregate inequality and it will decrease at later stage. Several attempts [Knight (1976), Robinson (1976), Sen (1984), Harriss (1986), Braun (1988), Deaton (1989), Anand and Kanbur (1990), Hadd and Kanbur (1992), Alperovich (1992)] have been made to test this hypothesis empirically but this hypothesis was not tested in relation to inter-state income inequality which is imperative for identification of the poorer states / regions during the process of economic development as well as change in the degree of inter-state income inequality. The policy significance of the present analysis is that in view of existence of “inverse U” pattern / Kuznets cycle in inter-state income inequality, it helps in designing the appropriate resource transfer scheme for the states by the federal government in order to establish the horizontal equity among the states.
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