The Tradeoff Between Inequality and Growth
AbstractIs there a trade-off between inequality and economic growth? The theory and the evidence are so far inconclusive. So far the theory and the evidence are inconclusive. We want to construct a political economy model of growth to demonstrate that excessive inequality can disrupt the economy by inviting political interference through rent-seeking behavior and appropriation, but that policies supporting some modest inequality to take advantage of productivity differences can lead to the best growth rates. Thus we show that the relation between inequality and growth may be mildly hump-shaped: growth may rise modestly at first, as we move away from complete equality, and then drop again as inequality increases further.
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Bibliographic InfoArticle provided by Society for AEF in its journal Annals of Economics and Finance.
Volume (Year): 4 (2003)
Issue (Month): 2 (November)
Politics; Inequality; Growth; Conflict; Distribution;
Find related papers by JEL classification:
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
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