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Lucas vs. Lucas: On Inequality and Growth

Author

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  • Juan Carlos Cordoba

    (Rice University)

  • Genevieve Verdier

    (Texas A&M)

Abstract

Lucas (2004) asserts that 'Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion, the most poisonous, is to focus on questions of distribution...The potential for improving the lives of poor people by finding different ways of distributing current production is nothing [Italics in the original] compared to the apparently limitless potential of increasing production.' In this article we evaluate this claim using an extended version of Lucas' (1987) welfare evaluation framework. We construct a social welfare function following Lucas' (2004) own suggestion of weighing everyone's welfare equally, and compute welfare measures in the same way as Lucas (1987). The result is surprising and robust. The potential welfare gains of redistribution are substantial and likely exceed the welfare gains of economic growth. Moreover, our calculations suggest that US inequality is above its optimal level.

Suggested Citation

  • Juan Carlos Cordoba & Genevieve Verdier, 2005. "Lucas vs. Lucas: On Inequality and Growth," Macroeconomics 0511021, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0511021
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    References listed on IDEAS

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    Cited by:

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    2. Córdoba, Juan Carlos & Verdier, Geneviève, 2008. "Inequality and growth: Some welfare calculations," Journal of Economic Dynamics and Control, Elsevier, vol. 32(6), pages 1812-1829, June.
    3. Petr Blizkovsky, 2012. "Are We Living in a Converging World? Regional Disparities and Convergences from a Global Perspective," Research in World Economy, Research in World Economy, Sciedu Press, vol. 3(2), pages 41-51, September.
    4. Jesse Perla & Christopher Tonetti, 2014. "Equilibrium Imitation and Growth," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 52-76.
    5. Kemp, Jordan T. & Bettencourt, Luís M.A., 2022. "Statistical dynamics of wealth inequality in stochastic models of growth," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 607(C).
    6. Jesse Perla & Christopher Tonetti, 2012. "Endogenous Risk and Growth," 2012 Meeting Papers 479, Society for Economic Dynamics.
    7. Michał Gradzewicz & Krzysztof Makarski & Joanna Tyrowicz, 2013. "Do We Really Need to Start From Scratch? Economic Theory on Economic Crises," Working Papers 2013-17, Faculty of Economic Sciences, University of Warsaw.

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    More about this item

    Keywords

    Welfare costs; business cycles; economic growth; inequality;
    All these keywords.

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • D3 - Microeconomics - - Distribution

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