"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."
"Our main findings are:
First, more unequal societies
tend to redistribute more. It is thus important in understanding the
growth-inequality relationship to distinguish between market and net
inequality.
Second, lower net inequality is
robustly correlated with faster and more durable growth, for a given level of
redistribution. These results are highly supportive of our earlier work.
And third, 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. Thus the
combined direct and indirect effects of redistribution—including the growth
effects of the resulting lower inequality—are on average pro-growth."
