Why income inequality is bad for growth

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Give credit to the Organisation for Economic Cooperation and Development, or OECD—an organization that has so often either mirrored or defined (depending on your point of view) the consensus on economic policy issues—for so thoroughly embracing the idea that high and growing income inequality may well be bad for growth. The Paris-based organization of leading developed and developing economies late last month issued its latest finding in its report “In It Together: Why Less Inequality Benefits Us All, which finds that “econometric analysis suggests that income inequality has a sizeable and statistically significant negative impact on growth.” (Emphasis in the original.)

The new report finds that between 1990 and 2010 gross domestic product per person in 19 core OECD countries grew by a total of 28 percent, but would have grown by 33 percent over the same period if inequality had not increased after 1985. This estimate is based on an econometric analysis of 31 high- and middle-income OECD countries, which concluded that lowering inequality by just one “Gini-point” (a standard measure of inequality used by economists) would raise the annual growth rate of GDP by 0.15 percentage points.

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Source: agenda.weforum.org