Does Equality Reduce Growth? A Theoretical Justification
Universidad de Cantabria Working Paper No. 5/02
22 Pages Posted: 7 Jun 2002
This paper designs a simple model that intends to explain theoretically a strange empirical regularity documented by some researchers: more equality reduces growth in rich countries. The main point of the model is to include equality as an argument that increases utility of the representative agents. The model does predict a negative link between equality and growth. The intuition is as follows: more public funds devoted to social programs intended to reduce inequality may crowd out other productive activities, thus damaging per capita growth. In other words, an excessive level of equality in society (especially if it is achieved by Social Welfare programs) may not be optimal from the point of view of growth.
Keywords: equality, economic growth, public expenditure
JEL Classification: 04-05
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