Redistribution, Inequality, and Growth

IMF paper table

Jonathan D. Ostry, Andrew Berg, and Charalambos G. Tsangarides over at the (seemingly very different) IMF:

Economists are increasingly focusing on the links between rising inequality and the fragility of
growth. Narratives include the relationship between inequality, leverage and the financial
cycle, which sowed the seeds for crisis; and the role of political-economy factors (especially
the influence of the rich) in allowing financial excess to balloon ahead of the crisis. In earlier
work, we documented a multi-decade cross-country relationship between inequality and the
fragility of economic growth. Our work built on the tentative consensus in the literature that
inequality can undermine progress in health and education, cause investment-reducing political
and economic instability, and undercut the social consensus required to adjust in the face of
shocks, and thus that it tends to reduce the pace and durability of growth.

That equality seems to drive higher and more sustainable growth does not in itself support
efforts to redistribute. In particular, inequality may impede growth at least in part because it
calls forth efforts to redistribute that themselves undercut growth. In such a situation, even if
inequality is bad for growth, taxes and transfers may be precisely the wrong remedy.

While considerable controversy surrounds these issues, we should not jump to the conclusion
that the treatment for inequality may be worse for growth than the disease itself.

More here. Also see here.