Unraveling the applicability of Kuznets and Financial Kuznets hypotheses to Egypt: a Gini-Palma comprehensive analysis with policy implications for SDG10

This study examines the applicability of the Kuznets Curve and Financial Kuznets Curve hypotheses and investigates the factors affecting income inequality in Egypt under the neoliberal Washington Consensus development model. Using data from 1960–2019, dynamic 2SLS and IV-GMM models are employed to account for endogeneity and ensure robust estimation. The findings reject the conventional Kuznets Curve and Financial Kuznets Curve hypotheses, revealing U-shaped relationships between inequality and both economic and financial development. For Financial Kuznets Curve, the estimated turning point occurs earlier for the rich strata, at 18.48% when inequality is measured by the Palma ratio, compared with 25.43% using the Gini coefficient. For Kuznets Curve, the turning point is $2252-2421 GDP level per capita. The key factors stimulating such outcomes include: weak labor market adaptability, persistence of high inequality prior to the financial depth expansion, and weak enforcement for financial inclusion prior and alongside financial depth expansion deriving a “too much excludable” banking system. To avoid steepening the 2nd phase of the curves and to trigger restoring inequality-narrowing potentials, the findings suggest policy actions promoting financial inclusion and inclusive growth practices while rebuilding the middle-class. The optimal window for policy reforms is determined by the estimated turning points.