The Environmental Kuznets Curve

The Validity of Kuznets and its Policy Implications

Harry Booth

Published: March 2017

The Kuznets curve is an income inequality measure used in development studies which predicts an inverse-U shape with inequality first rising with industrialisation and then declining, as more and more workers join the high-productivity sectors of the economy. Criticism of the Kuznets curve has focused on the validity of the data it was hypothesised upon as well as its econometric techniques. Kuznets’s work was based on time-series data for just three countries: the United States, the United Kingdom and two states in Germany. Kuznets used the historical shift from agriculture to industry to presume that inequality grew in both the UK and the USA before his time-series data started, although he had no data to confirm this. Later studies using relevant, up-to-date data have found that the Kuznets curve might not be strictly true for a specific country, but that it may hold true for a cross-section of countries, at a specific point in time.

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