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Inequality and Economic Growth: Why the OECD and the IMF are Wrong

Author

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  • Clemens Fuest
  • Florian Neumeier
  • Daniel Stöhlker

Abstract

In two recent studies, the OECD and the IMF claim that inequality has a negative impact on economic growth and conclude that redistributive policies have no growth inhibiting effect. This claim is misleading. An empirical analysis demonstrates that for high-income countries there is a positive – and not a negative – connection between inequality and growth. However, this connection is not due to a causal relationship. Both growth and inequality should be seen as being influenced by a variety of factors. These include policy-driven or policy-influenced factors such as human capital investment, tax laws or government regulation of the economy.

Suggested Citation

  • Clemens Fuest & Florian Neumeier & Daniel Stöhlker, 2018. "Inequality and Economic Growth: Why the OECD and the IMF are Wrong," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(10), pages 22-25, May.
    • Handle: RePEc:ces:ifosdt:v:71:y:2018:i:10:p:22-25
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    References listed on IDEAS

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    2. Neves, Pedro Cunha & Afonso, Óscar & Silva, Sandra Tavares, 2016. "A Meta-Analytic Reassessment of the Effects of Inequality on Growth," World Development, Elsevier, vol. 78(C), pages 386-400.
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    5. Frederick Solt, 2016. "The Standardized World Income Inequality Database," Social Science Quarterly, Southwestern Social Science Association, vol. 97(5), pages 1267-1281, November.
    6. Federico Cingano, 2014. "Trends in Income Inequality and its Impact on Economic Growth," OECD Social, Employment and Migration Working Papers 163, OECD Publishing.
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    Cited by:

    1. Till van Treeck & Judith Niehues & Galina Kolev & Piotr Pysz & Peter Hampe & Andreas Peichl & Marc Stöckli & Georg Cremer, 2018. "How Fair Is the World? – Social Inequality and Economic Growth," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 71(15), pages 03-25, August.
    2. Judith Niehues & Maximilian Stockhausen & Andreas Peichl & Charlotte Bartels & Mario Bossler & Bernd Fitzenberger & Arnim Seidlitz & Moritz Kuhn & Till Baldenius & Sebastian Kohl & Moritz Schularick &, 2020. "Ungleichheit unter der Lupe – neue politische Antworten auf ein bekanntes Thema," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 73(02), pages 03-26, February.

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    More about this item

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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