Inequality and Unsustainable Growth: Two Sides of the Same Coin?

The relationship between income inequality and economic growth is complex and the evidence mixed. This paper focuses on the connections between income inequality and the fragility of economic growth. We find that longer growth spells—periods of strong, healthy, per capita growth—are robustly associated with more equality in the income distribution, even when controlling for a range of other standard determinants. A key implication is that it would be a gamble to think that distribution will take care of itself provided policy makers steadfastly pursue growth. Over longer horizons, avoiding excessive inequality and sustaining economic growth may be two sides of the same coin.

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