Pay Low-Income Families More to Boost Economic Growth, Says IMF
The idea that increased income inequality makes economies more dynamic has been rejected by an International Monetary Fund study, which shows the widening income gap between rich and poor is bad for growth.
A report by five IMF economists dismissed “trickle-down” economics, and said that if governments wanted to increase the pace of growth they should concentrate on helping the poorest 20% of citizens.
The study - covering advanced, emerging and developing countries - said technological progress, weaker trade unions, globalisation and tax policies that favoured the wealthy had all played their part in making widening inequality “the defining challenge of our time”.
More: Pay Low-Income Families More to Boost Economic Growth, Says IMF
The International Monetary Fund has backed economists who argue that inequality is a drag on growth in a discussion paper that has also dismissed rightwing theories that efforts to redistribute incomes are self-defeating.
The Washington-based organisation, which advises governments on sustainable growth, said countries with high levels of inequality suffered lower growth than nations that distributed incomes more evenly.
Backing analysis by the Keynesian economist and Nobel prizewinner Joseph Stiglitz, it warned that inequality can also make growth more volatile and create the unstable conditions for a sudden slowdown in GDP growth.
FROM: IMF study finds inequality is damaging to economic growth