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Can higher savings moderate the income inequality?

Kiran Sharma, Subhradeep Das, Anirban Chakraborti

posted on 04 January 2018

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Societies should be ideally equitable. However, in reality the scenario is very different and the phenomena of socio-economic inequalities have plagued mankind from times immemorial. We now ask a question: Can higher savings moderate the income inequality? In this paper, we have tried to address this question and establish an empirical link between the income inequality with savings, mainly for closed economies, and also relate it to an existing theoretical model based on the principle of kinetic theory of gases. We tested our model empirically using Gini Index (a measure for income inequality) and Gross Domestic Savings (percentage of GDP), and observed that our model holds reasonably true for many real closed economies of the world.