Revisiting the Debate on Inequality and Economic Development

This paper offers a selective survey of the abundant theoretical, empirical and policy-oriented literature on the relationship between inequality and development in the last 20 years or so. The main argument of this survey revolves around the necessary, but often ignored distinction to be made between the inequality of outcomes, including income or consumptions expenditures, and the inequality of opportunity as an obstacle to development. Theoretical justifications of a negative relationship between economic development and inequality indeed suggest that it is not the inequality of economic outcomes, income or consumption, per se that hinders economic development but other dimensions of economic and social inequality, including family background, access to the credit market, education, health care, security, justice and so-called ?horizontal? inequality between ethnic groups or gender. It turns out that the inequality of income, on which the empirical literature focuses almost exclusively, is a very imperfect marker of this broader definition of inequality, that corresponds to the inequality of opportunity. At the same time, and somewhat paradoxically, correcting these various dimensions of inequality requires policies that imply some redistribution of income, even though income inequality is more a consequence than the main cause of those inequalities that actually hinder development.