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Lucas vs. Lucas: On Inequality and Growth

  • Juan Carlos Cordoba

    (Rice University)

  • Genevieve Verdier

    (Texas A&M)

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.

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File URL: http://econwpa.repec.org/eps/mac/papers/0511/0511021.pdf
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Paper provided by EconWPA in its series Macroeconomics with number 0511021.

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Length: 41 pages
Date of creation: 18 Nov 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0511021
Note: Type of Document - pdf; pages: 41
Contact details of provider: Web page: http://econwpa.repec.org

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