does tackling inequality reduce growth? no.

http://www.newyorker.com/online/blogs/johncassidy/2014/02/does-tackling-inequality-reduce-growth-no.html



***SNIP

The research paper, “Redistribution, Inequality, and Growth,” has been posted on the I.M.F.’s Web site and authorized for distribution by Olivier Blanchard, the I.M.F.’s chief economist. (I am grateful to Jim Tankersley, of the Washington Post, for drawing my attention to it on Twitter.) Its authors—Jonathan D. Ostry, Andrew Berg, and Charalambos G. Tsanarides—begin by pointing to previous empirical findings that sustained economic growth seems, on average, to be associated with more equal income distribution. But this might not, in itself, make the case for using distribution to attain that equality, they explain: “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…taxes and transfers may be precisely the wrong remedy.”

To figure out whether this is happening, the authors exploit a new dataset that distinguishes between the level of “market inequality” in a given country and the level of inequality after taxes and transfers. The difference between the two types of inequality provides a measure of how much redistribution is being carried out; the authors then use statistical regressions to analyze whether there is any relationship between redistribution and growth rates. Here are two of their conclusions:

Redistribution appears generally benign in terms of its impact on growth; only in extreme cases is there some evidence that it may have direct negative effects on growth.
And:

The combined direct and indirect effects of redistribution—including the growth effects of the resulting lower inequality—are, on average, pro-growth.