Abstract
The Kuznets hypothesis of inverted U-curve dependence of the income inequality on the absolute value of the average income is still an unresolved issue despite the growing number of theoretical and empirical research on this topic. This paper analyzes the historical data on the average income and the income inequality for the period 1979-2009 collected for 145 countries.
We found that the income inequality is infl uenced predominantly by governmental policy on subsidies and social transfers. Different amount of subsidies and social transfers across various countries makes the data biased.
The inverted U-curve was found in countries with low amount of social contribution. However, increasing amount of social contributions makes the U-curve fl at and shifts its maximum to higher values of the average income.
Based on the experimental data a model describing the infl uence of both governmental policy and the level of economic development was developed.