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Inequality, redistribution, and growth: new evidence on the trade-off between equality and efficiency

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  • Jaejoon Woo

    (DePaul University)

Abstract

The past several decades have seen a significant and sustained increase in income inequality across many countries. Against this backdrop, some policymakers and economists are calling for distributive policies to address the rising inequality directly. Yet, there has been little systematic analysis of whether and how redistribution affects economic growth. To our knowledge, this is the first paper that systematically analyzes and presents evidence in a large panel of countries over 1965–2010 that redistribution can involve a non-trivial “trade-off” between equity and growth. Making it richer and more interesting, evidence also shows that the degree of trade-off between equity and growth tends to vary with the initial level of market income inequality and the size of redistribution itself. Extensive robustness checks confirm the results.

Suggested Citation

  • Jaejoon Woo, 2020. "Inequality, redistribution, and growth: new evidence on the trade-off between equality and efficiency," Empirical Economics, Springer, vol. 58(6), pages 2667-2707, June.
  • Handle: RePEc:spr:empeco:v:58:y:2020:i:6:d:10.1007_s00181-019-01815-0
    DOI: 10.1007/s00181-019-01815-0
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    More about this item

    Keywords

    Inequality; Gini coefficient; Redistribution; Growth; Trade-off between equity and efficiency;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • D30 - Microeconomics - - Distribution - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General

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