26 February 2014: An International Monetary Fund (IMF) publication shows that lower inequality within a country is correlated with more economic growth. ‘Redistribution, Inequality, and Growth’ examines new cross-country data to evaluate the relationship between redistribution policies, economic inequality, and sustainable growth. The paper asserts that whether redistribution is pro- or anti-growth is an empirical question, and concludes that it is the former.

Three main findings are highlighted in the summary of the paper: more unequal societies redistribute more; lower net inequality is “robustly correlated” with more durable and faster growth; and redistribution has a generally benign impact on growth, with few extreme cases of negative impacts. The paper also finds that the combined effects of redistribution policies, direct and indirect, are pro-growth, on average. Equality-enhancing government interventions can also help growth, it states, such as taxes on negative externalities or cash transfers for encouraging school attendance.

“We should be careful not to assume that there is a big trade-off between redistribution and growth,” the paper writes, stating that this belief is not consistent with macro-economic evidence. [Publication: Redistribution, Inequality, and Growth] [IMFdirect Discussion of Paper] [Publication Page] [Transcript of Conference Call on Paper]