Afternoon Must-Read: Mark Thoma: Income redistribution doesn’t hurt growth

Mark Thoma: Why income redistribution doesn’t hurt growth: “Until recently, most economists believed there’s a trade-off between equity and efficiency…

…and that the redistribution of income would lower economic growth…. The main reason is that taking income away from the wealthy reduces the incentive to implement innovative ideas. In its most extreme form, where redistribution is used to ensure that everyone has the same income, why bother to work hard, or work at all? But… Ostry [et al.]… there are also reasons to believe the redistribution of income can enhance economic growth…. Their paper’s main finding is that ‘redistribution appears generally benign in terms of its impact on growth; only in extreme cases is there some evidence that it may have direct negative effects’… ‘the combined direct and indirect effects… are on average pro-growth’…. Economics does not tell us what the distribution of income ought to be. That involves a value judgment, and individuals will differ on what is fair and equitable. But economics can tell us about the consequences of redistribution, and the best evidence we have suggests that modest redistribution, if anything, enhances growth.