Inequality and Economic Growth: Why the OECD and the IMF are Wrong

In two recent studies, the OECD and the IMF claim that inequality has a negative impact on economic growth and conclude that redistributive policies have no growth inhibiting effect. This claim is misleading. An empirical analysis demonstrates that for high-income countries there is a positive – and not a negative – connection between inequality and growth. However, this connection is not due to a causal relationship. Both growth and inequality should be seen as being influenced by a variety of factors. These include policy-driven or policy-influenced factors such as human capital investment, tax laws or government regulation of the economy.