The Tradeoff Between Inequality and Growth

Jess Benhabib

Annals of Economics and Finance, 2003, vol. 4, issue 2, 491-507

Abstract: Is there a trade-off between inequality and economic growth? The theory and the evidence are so far inconclusive. So far the theory and the evidence are inconclusive. We want to construct a political economy model of growth to demonstrate that excessive inequality can disrupt the economy by inviting political interference through rent-seeking behavior and appropriation, but that policies supporting some modest inequality to take advantage of productivity differences can lead to the best growth rates. Thus we show that the relation between inequality and growth may be mildly hump-shaped: growth may rise modestly at first, as we move away from complete equality, and then drop again as inequality increases further.

Keywords: Politics; Inequality; Growth; Conflict; Distribution (search for similar items in EconPapers)
JEL-codes: C73 O10 (search for similar items in EconPapers)
Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2003:v:4:i:2:p:491-507

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