According to increasing marginal tendency to tax avoidance, we establish a dynamic theoretical model and derive an optimal path of economic growth only using dimensionless parameters, which illustrates an inverted U-curve relationship between economic growth and income inequality in the long run. This finding stands in sharp contrast to the Kuznets curve—whereby inequality first increases and then decreases during economic process. Instead, the growth shows a trend of moving upward and then downward as the Gini coefficient increases. We present empirical evidence consistent with our model by controlling for endogeneity.
JEL Classification: O41 , O11 , E13