Income Inequality Significantly Damages Growth, OECD Says

Source: Bloomberg News

Widening inequality creates a drag on economic growth that can be counteracted by tax policies to benefit the less well-off, according to the Organisation for Economic Cooperation and Development.

In an analysis published today, the Paris-based group said it undermines growth by preventing disadvantaged people from accessing education to develop their skills, impeding social mobility. To offset the damage, policy makers need to be concerned with the general welfare of the bottom 40 percent of society and not just the poverty of the lowest 10 percent.

The study taps into a global debate this year about inequality, an issue also raised by Federal Reserve Chair Janet Yellen in October when she questioned the disparities of wealth and income growth. According to the OECD, inequality knocked about 6-7 percentage points off U.S. gross domestic product growth between 1990 and 2010, while the U.K., Italy and Mexico were among countries that also experienced a drag.

The report “challenges the view that policy makers necessarily have to address the trade-off between promoting growth and addressing inequality,” the OECD said. “Policies that help to limit or reverse inequality may not only make societies less unfair, but also wealthier.”

Read more: http://www.bloomberg.com/news/2014-12-08/income-inequality-significantly-hurts-economic-growth-oecd-says.html