Good and Bad Inequality

MILAN – Rising income and wealth inequality in many countries around the world has been a long-term trend for three decades or more. But the attention devoted to it has increased substantially since the 2008 financial crisis: With slow growth, rising inequality bites harder.

The “old” theory about inequality was that redistribution via the tax system weakened incentives and undermined economic growth. But the relationship between inequality and growth is far more complex and multi-dimensional than this simple trade-off suggests. Multiple channels of influence and feedback mechanisms make definitive conclusions difficult.