Development of Inequality: A Theoretical Treatise

A. F. M. Ataur Rahman and Ahsan Senan

Income inequality is one of the most discussed topics of development economics. Starting from Kuznets (1955) many studies have talked about the evolution pattern of inequality through human society. Political dimensions along with economic determinants are used in literature to explain variations of inequality. Among political issues some argue that free market economy and the declining strength of socialist arguments in policy making have meant income inequality continues to rise. In economic front issues like human capital (and education) and fertility rates are argued to be the key determinants of income inequality. However, other studies (Rahman and Senan, 2014) have found the incidence of education and fertility in developing countries to be an outcome of income inequality, and not the other way around. By starting off with homogenous families in terms of endowments, and varying in their preferences, this current paper will attempt to develop a theoretical model showing how income inequality may evolve in an otherwise equal society; and its implications; and the effect redistributive practices may have on the evolution of income inequality.