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Begin New Search Topic Inequality Author Mario Negre

1. Dismantling the Myth of the Growth–Inequality Trade-Off

Author:
Mario Negre, Jose Cuesta, Ana Revenga, and Prescott J. Morley
Publication Date:
01-2019
Content Type:
Policy Brief
Institution:
German Development Institute (DIE)
Abstract:
Conventional economic wisdom has long maintained that there is a necessary trade-off between pursuit of the efficiency of a system and any attempts to improve equity between participants within that system. Economist Robert Lucas demonstrated the implications of this common economic axiom when he wrote: “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution [...] the potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production.” (Lucas, 2004) Indeed, many economists have suggested that too little inequality or too generous a distribution of benefits may undermine the individual’s incentive to work hard and take risks. Setting aside the harsh rhetoric used by Lucas, the practical and ethical acceptability of such a trade-off is debatable. Moreover, evidence from recent decades suggests that the trade-off itself is, in many cases, entirely avoidable. A large body of research has shown that improved competition and economic efficiency are indeed compatible with government efforts to address inequality and reduce poverty, as assessed in a World Bank report (World Bank, 2016). Contrary to another common belief about economic interventions, this research indicates that such policy interventions can be tailored to succeed in all countries and at all times; even low- and middle-income countries in times of economic crisis can successfully pursue policies to improve economic distribution, with negligible negative impacts on efficiency and, in many cases, even positive ones. Some examples of such pro-equity and pro-efficiency measures include those promoting early childhood development, universal health care, quality education, conditional cash transfers, rural infra-structure investment, and well-designed tax policy. Overall, four critical policy points stand out: 1. A trade-off is not inevitable. Policymakers do not need to give up on reducing inequality for the sake of growth. A good choice of policies can achieve both. 2. In the last two decades, research has generated substantive evidence about which policies work to foster growth and reduce inequalities. 3. Policies can redress the inequalities children are born into while fostering growth. But the wrong sets of policies can magnify inequalities early in life and thereafter. 4. All countries can, under most circumstances, implement policies that are both pro-equity and pro-efficiency.
Topic:
Governance, Inequality, Economic growth, and Economic Policy
Political Geography:
Germany and Global Focus

2. Economic Mobility across Generations: Old versus New EU Member States

Author:
Roy van der Weide, Ambar Narayan, and Mario Negre
Publication Date:
01-2019
Content Type:
Policy Brief
Institution:
German Development Institute (DIE)
Abstract:
A country where an individual’s chances of success depend little on the socio-economic success of his or her parents is said to be a country with high relative intergenerational mobility. A government’s motivation for seeking to improve mobility is arguably two-fold. There is a fairness argument and an economic efficiency argument. When mobility is low, it means that individuals are not operating on a level playing field. The odds of someone born to parents from the bottom of their generation will be stacked against him or her. This is not only unfair but also leads to a waste of human capital, as talented individuals may not be given the opportunity to reach their full potential. Reducing this inefficiency will raise the stock of human capital and thereby stimulate economic growth. Since the waste of human capital tends to be concentrated toward the bottom of the distribution, the growth brought about by mobility-promoting policy interventions tends to be of an inclusive nature, in line with the spirit of Sustainable Development Goal (SDG) 10 on reducing inequality. For large parts of the world’s population, individual education is still too closely tied to the education of one’s parents, and there is a clear divide between the high-income and developing world. The patterns observed globally are also observed within Europe. Intergenerational mobility (or equality of opportunity) is visibly lower in the new member states (i.e. Eastern Europe), where national incomes are lower. Raising investment in the human capital of poor children towards levels that are more comparable to the investment received by children from richer families will curb the importance of parental background in determining an individual’s human capital. Countries at any stage of development can raise intergenerational mobility by investing more to equalise opportunities. The evidence strongly suggests that public interventions are more likely to increase mobility when: a) public investments are sufficiently large, b) are targeted to benefit disadvantaged families/ neighbourhoods, c) focus on early childhood, and d) when there is a low degree of political power captured by the rich.
Topic:
Education, Children, Inequality, Family, and Economic Mobility
Political Geography:
Europe, Global Focus, and European Union