Redistribution of Income: Inequality versus growth 収入の再配分――格差と成長

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The relationship between inequality and economic growth is slowly being understood.

格差と経済成長の関係は少しずつ理解され始めている

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April 14, 2015Reducing poverty and economic disparity is an important macroeconomic objective of any nation. The widening income gap between the rich and the poor necessitates an in-depth understanding of its causes, which will, in turn, facilitate the formulation of efficient policies to counter the malady. Rising income inequality can have serious implications on the economy due to the growing clamor for trade protection, restrictions on immigration, union protections, and government subsidies.

The policy toward inequality and poverty is targeted to achieve both horizontal and vertical equity. The U.S. spends heavily on redistributing income by taxing the rich and using the revenues obtained to support a variety of welfare programs such as food stamps, Medicare, social security disability benefits, and the Earned Income Tax Credit. However, despite such redistribution, economic inequality in the country has seen a rise in recent decades. The poorest 20% of US households have only 5% of the nation’s total personal income and the richest 20% have 50%. The inflation-adjusted median household income fell by 4% in the period 1996-2008 and by 8.9% between 2007 and 2011.

The trend of rising inequality is mostly attributed to the increasing returns accrued by well-educated people as a result of a shift in the economy to methods of production and distribution that require the application of knowledge. Besides, the falling marginal income tax rate is another important factor. Measures to counter this inequality could help in increasing the level of economic efficiency. For example, pruning the incomes of the rich can reduce political pressures and put a break on inefficient policies. This was precisely the rationale behind the adoption of socialist measures by capitalist nations to tackle the issue of radical ideologies.

Income redistribution can suppress efficiency, decrease incentives to work, and hamper innovation and productivity. Furthermore, the incremental income from working may be negligible if the increment carries the recipient of benefits over the benefits threshold. The worker may lose in benefits all of or even more than his income increment from working. This effect can be curtailed by a graduated reduction in benefits to make them less than the recipient’s increased working income.

Inequality can also make growth more volatile and create unstable conditions for a sudden slowdown in GDP growth. Overcoming this robs the rich of incentives to invest and the poor of the zeal to work and is counter-productive. Higher inequality does have a detrimental effect on growth and helping people who are truly in need, while also not weakening the broader economy is important. Equality of opportunity may be harder to achieve in an unequal society.

Poverty not only causes low standards of living and poor health but adversely affects both individuals and society by preventing those at the lower ranks from realizing their potential. Economists suggest that social balancing programs provide transfers to boost the incomes of low-income or unemployed groups. These instruments are believed to be four to five times as effective in stimulating demand as policies that benefit high-income groups, such as tax cuts for those with high incomes, for corporations and in the capital gains arena.

Income redistribution and economic growth have a complex relationship. A generation ago, perhaps even just a few years ago, worry about high or rising income inequality stemmed mainly from a belief that it is unfair. In recent years, the source of apprehension has shifted. The dominant concern now is that inequality may have harmful effects on a range of outcomes, from education to health to economic growth to happiness to democracy and more.

The relationship between inequality and growth is gradually sinking in, but one needs to understand that both entities are statistics representing measures of income. The annual rate of growth is reflected in the amount of reported income accumulating over a year and inequality is a measure of the distribution of that income. The factors that increase income and wealth concentration also reduce growth. So growth and distribution can’t be segregated from one another.

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 日本語訳

収入の格差は、経済と社会の両方に深刻な影響を及ぼす、すべての国にとって大きな懸念のひとつだ。

米国は、富裕層に税金を課して、その歳入を食料割引券、医療保険制度、社会保障傷病手当金、勤労所得控除などのさまざまな社会福祉制度に充てる政策を採用してきた。しかし、ここ数十年間、格差は増え続けている。

格差と経済成長の関係は少しずつ理解され始めているが、この二つの概念は収入の目安であり、分けて考えることはできない。