Earlier IMF work has shown that income inequality is bad for growth and its sustainability. Our new research shows that income distribution itself—not just the level of income inequality—matters for growth.
Specifically, we find that making the rich richer by one percentage point lowers GDP growth in a country over the next five years by 0.08 percentage points—whereas making the poor and the middle class one percentage point richer can raise GDP growth by as much as 0.38 percentage points (Chart 2). Put simply, boosting the incomes of the poor and the middle class can help raise growth prospects for all.
One possible explanation is that the poor and the middle class tend to consume a higher fraction of their income than the rich. If more money flows to these segments of society, they will consume rather than save, raising demand and spurring aggregate growth in the short run. What this means is that the poor and the middle class are key engines of growth. But with inequality on the rise, those engines are stalling.
Over the longer run, persistent inequality means that the the poor and the middle class have fewer opportunities to get educated, enhance their skills, and pursue their entrepreneurial dreams. As a result, labor productivity and growth suffer.Ya think?
IMF Direct
Growth’s Secret Weapon: The Poor and the Middle Class
Growth’s Secret Weapon: The Poor and the Middle Class
Era Dabla-Norris, Kalpana Kochhar, and Evridiki Tsounta
ht Mark Thoma at Economist's View
2 comments:
"But with inequality on the rise, those engines are stalling."
In an electrical analogy, neither unequal power distribution nor motor inefficiency would ever cause a motor to "stall"....
This is like the "anti-Pope" here, these IMF people are trying to convince the elites to pursue a policy of less inequality of income with an appeal for "higher growth" that they assert will result...
While the Pope is trying to shame people to pursue LESS GROWTH which he asserts will lead to less inequality...
I dont think logically they both can be right... they both have opposing causations...
iow the Pope thinks more growth leads to more inequality while the IMF people think less inequality leads to more growth...
They are both lost and grasping for straws....
Story of the century, Tom.
Some journalist will win both the Pulitzer & a Nobel Prize for this incredible, UNEXPECTED insight.
"No one could have expected that!" :(
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