Economic
Broadly speaking the economic impact of inequality is widespread and considerable. It
affects the demand structure of the lower and middle class. If the lowest class is
perpetually at a state of subsistence, lacks access to education, healthcare, social security
benefits and has no political influence they will remain in poverty unable to consume a
higher percentage of goods and services. According to Murphy et al. [(1989) in
Gottschalk and Justino, 2006)] “decreases in income inequality imply a wealthier middle
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class, (enlarged by those coming out of the poorer classes), which are the most significant
consumers of manufactured goods.”
The saving rate is significantly affected at low incomes. According to the
Harrod-Domer Model of Economic Growth, the availability of saving is the key to
economic growth. A lower the saving rate results in less money available for investment
therefore yielding a lower rate of growth (see Ray, 1998). The creation of the larger
middleclass will also increase the saving rate. In general, improved opportunities for the
poor in the form of reduced income inequality will lead to a higher volume of
consumption thereby expanding the internal market, a higher savings rate, and ultimately
a better position for economic growth.