Income Inequality and Economic Development: Friends or Best Enemies? Empirical Evidence from Algeria

This paper examines the complex relationship between income inequality and economic development, with a focus on Algeria. Using panel data from 15 countries and country-specific analysis, the study employs econometric models (OLS and GMM) to investigate whether income inequality promotes or hinders economic growth. The Gini index serves as the primary measure of inequality. Results reveal a non-linear relationship: at lower inequality levels, increases in inequality can promote growth through higher savings and investment incentives; however, excessive inequality dampens growth by reducing consumer spending and creating social tensions. A Kuznets curve analysis suggests an inverted U-shaped pattern. For Algeria specifically, income inequality exhibits a significantly negative impact on growth, indicating the country operates in a range where further inequality reduction would support economic development. The findings underscore that the inequality-growth nexus depends critically on the degree of inequality already achieved and the level of economic development.