Is Inequality Harmful for Growth
Is inequality harmful for growth? The authors suggest that it is. In a society where distributional conflict is important, political decisions produce economic policies that tax investment and growth-promoting activities in order to redistribute income. The paper formulates a theoretical model that captures this idea. The model's implications are supported by the evidence. Both historical panel data and postwar cross-sections indicate a significant and large negative relation between inequality and growth. This relation is only present in democracies. Copyright 1994 by American Economic Association.
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