Why is the Kuznets Curve Inverted?

By Balaji

Updated on: March 6th, 2023

The Kuznets Curve is Inverted due to the early rise in income inequality, as per capita income rises. Even though the income per capita keeps rising after a particular stage of economic development, the income disparity declines. Simon Kuznets, an economist, put out a theory in the 1950s and 1960s that is expressed by the Kuznets curve. This theory holds that when an economy grows, market forces initially lead to an increase in economic inequality and later cause it to decline.

Table of content

1. Inverted Kuznets Curve
2. Why is the Kuznets Curve Inverted?

Inverted Kuznets Curve

A Kuznets curve illustrates how and when market forces and income change as an economy grows. Simon Kuznets, an economist, created the Kuznets curve in the 1950s and 1960s.

The Kuznets curve illustrates how, as a nation undergoes industrialization, its economic center will shift toward urban regions.
As farmers move to their towns in search of higher-paying work in urban centers, the rural population will decrease, and the urban population will increase.
Once the average income has been established, and industrialization is well underway, inequality is expected to decrease.
According to Kuznets, inequality would resemble an inverted “U” as it increases and decreases as income increases.
Although the variables along the axes are frequently mixed and matched, Kuznets curve diagrams depict an inverted U curve, with economic progress, time, or per-capita incomes on the X-axis and inequality or the Gini coefficient on the Y-axis.

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