Does inequality lead to less economic growth?

Introduction

The relationship between income inequality and economic growth has been a subject of extensive research and debate. Various studies have explored whether inequality hinders or promotes economic growth, with findings often varying based on the context and specific conditions of the countries studied.

Key Insights

Negative Impact of Inequality on Growth in Poor Countries:
- Higher inequality tends to retard growth in poorer countries .
Positive Impact of Inequality on Growth in Rich Countries:
- In richer countries, higher inequality can encourage economic growth .
Role of Poverty:
- The negative effect of inequality on growth is more pronounced in countries with high poverty levels.
Intergenerational Mobility:
- The negative impact of income inequality on growth is higher in economies with low intergenerational mobility.
Redistribution and Growth:
- Redistribution can have a positive effect on growth, especially in more unequal societies .
Complex Relationship:
- The relationship between inequality and growth is complex, with some inequality being necessary for investment incentives, but excessive inequality potentially leading to economic instability and reduced growth duration .
Impact on Different Income Groups:
- High levels of inequality reduce the income growth of the poor while potentially benefiting the rich.

Conclusion

The relationship between inequality and economic growth is multifaceted and context-dependent. In poorer countries, higher inequality generally hinders growth, while in richer countries, it can sometimes promote growth. The negative effects of inequality are more pronounced in contexts of high poverty and low intergenerational mobility. Redistribution policies can mitigate some of the adverse effects of inequality on growth. Overall, while some level of inequality may be necessary for economic incentives, excessive inequality can be detrimental to sustained economic growth.

Does inequality lead to less economic growth?

Summary

Consensus Meter

Introduction

Key Insights

Conclusion

Sources and full results

Inequality, poverty and economic growth

Inequality negatively impacts economic growth, but its negative effect is concentrated in countries with high poverty, suggesting policies targeting poverty alleviation may have a greater impact on growth.

Inequality and Growth in a Panel of Countries

Higher income inequality tends to retard growth in poor countries and encourage growth in richer places, but this relationship is not fully explained by the Kuznets curve.

Income Inequality and Economic Growth

Higher income inequality can retard growth in early stages and encourage growth in a near steady state, and income redistribution by high taxes does not always reduce inequality.

Inequality and Economic Growth: The Perspective of the New Growth Theories

Inequality negatively impacts economic growth and redistribution positively enhances it, with technical change playing a crucial role in explaining the recent increase in wage inequality.

Inequality, redistribution and growth: A challenge to the conventional political economy approach

More unequal societies tend to redistribute less, which may be detrimental to growth, rather than more redistribution being harmful to growth.

Inequality of Opportunity, Inequality of Income and Economic Growth

Income inequality negatively impacts economic growth more when intergenerational mobility is lower, highlighting the importance of considering this factor in interpreting the relationship between income inequality and growth.

Inequality and the Duration of Growth

More equality in income distribution is strongly associated with longer growth periods, even when considering external shocks, initial income, institutional quality, openness to trade, and macroeconomic stability.

Income Inequality and Economic Growth

Income inequality negatively impacts GDP growth, with the transfer channel being the most important channel and productivity growth being the least important channel.

Inequality is Bad for Growth of the Poor (But Not for that of the Rich)

High levels of inequality reduce income growth for the poor and help the rich, with top inequality primarily holding back bottom growth.

Is Inequality Harmful for Growth? Theory and Evidence

Inequality negatively impacts growth, as political decisions lead to policies that limit private individuals' access to growth-promoting activities.

Try another search