The impact of income inequality on economic growth: Threshold effects analysis in Central and Eastern Europe

This bachelor's thesis examines the relationship between income inequality and economic growth in Central and Eastern European countries over the period 2002–2022. The theoretical section defines the concepts of income inequality and economic growth, explores the methods used to measure them, outlines their main determinants, and reviews theoretical approaches that explain their interrelation. The empirical section employs panel regression analysis to investigate not only a linear but also a potentially nonlinear relationship between inequality and growth. The nonlinear relationship is tested using a quadratic term, which allows for the identification of a so-called threshold value— an inequality level at which the effect on economic growth shifts from positive to negative. The results indicate that the Gini coefficient is not statistically significant, whereas the income share of the bottom 50 % of the population exhibits a significant relationship with economic growth. The quadratic term of this variable, however, is not statistically significant; thus, the estimated threshold value is interpreted as indicative rather than definitive. Nonetheless, the analysis suggests that both excessive equality and excessive inequality may hinder growth, thereby opening space for discussion on the existence of an optimal income distribution in terms of fostering economic development.