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The International Monetary Fund came out Wednesday in support of the fight against income inequality, with Fund economists saying income redistribution efforts can strengthen economic growth.
Plunging into a debate over the gap between rich and poor that is fueling political battles from the United States to Brazil to Thailand, economists from the Fund said there is already general agreement that inequality can fuel economic and political instability.
But do policies to redistribute income help or hurt growth? asked economists Jonathan Ostry, Andrew Berg and Charalambos Tsangarides.
The answer, they said, is a net gain, even if there is an initial cost to an economy from taxes and transfers which aim to close an income gap.
"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," they said in a research paper, "Redistribution, Inequality, and Growth", and an accompanying blog comment.
"Equality-enhancing interventions could actually help growth."
The trio cited the benefits of taxes on activities of the wealthy that could hurt an economy, like excessive financial speculation, and payments to the poor to support their children going to school.
Much of the thinking has been that, even if a large wealth gap is bad, that the cures of taxes and wealth transfers to correct the problem usually hamper growth.
"Many argue that redistribution undermines growth, and even that efforts to redistribute to address high inequality are the source of the correlation between inequality and low growth," they said.
"If this is right, then taxes and transfers may be precisely the wrong remedy: a cure that may be worse than the disease itself."
But the authors said that experience across a number of countries has provided "remarkably little evidence" for that conclusion.
Indeed, they said, "faster and more durable growth seems to have followed the associated reduction in inequality."
"The average redistribution, and the associated reduction in inequality, seem to be robustly associated with higher and more durable growth."
The authors are cautious to avoid saying the effects of redistribution are positive in every case or situation, and note that extreme efforts can have a bad outcome.
But overall, they argue that redistribution programs should be not be excluded from policy out of fear they would hold back an economy.
"It would still be a mistake to focus on growth and let inequality take care of itself, if only because the resulting growth may be low and unsustainable. Inequality and unsustainable growth may be two sides of the same coin."
© (c) 2014 AFP
4 Comments
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minello7
I agree there should be a distribution of wealth. There are on this planet some fine philanthropists, Bill gates is a shining example, because not only did he create his foundation but he gives his time to the same foundation to make changes for the good of mankind, his health program in Africa, and his education program are but two examples. I'm not against people making money, but imagine if the 1% who have the most, donated not only 1% of their wealth, but their time and expertise that got them their wealth, the World would be a better World, and think we wouldn't need all those bumbling politicians anymore.
AnonymousArizonan
The United States is already too Communist. It doesn't need to get to the point of literally using Communist jargon openly. "Redistribution of wealth."
jeff198527
The IMF is just another Marxist international organization. What good will punishing the wealthy do?
bass4funk
Yes, let's TAKE from the earners from people that worked hard all their life and give the money to the free loaders and why? Because you earn too much you don't need it all. This is why I think liberals are communist/ socialists, because they'd rather rob from Paul to give to Peter! Redistribution NEVER works longterm! Working hard means nothing to you people, but mooching off the back of others is the way to go? But I'm not surprised, since the anointed one has been president, he hasn't really created jobs anywhere in the private sector. Welfare, unemployment and other entitlement programs have increased under this food stamp president. This is why more and more wealthy people are running off to more tax friendly states or countries where they can RIGHTFULLY hide their money from the greedy clutches of the government. For the next 3 years, the economy and the private sector and entrepreneurship and financial prosperity will NEVER happen under this admin. Like Margaret Thatcher once said, "socialism is always good until you run out of other people's money."