Inequality and Economic Growth
Initial theories incorrectly stated that inequality had a positive effect on economic development. The marginal propensity to save was thought to increase with wealth and inequality increases savings and capital accumulation. However, it was determined much later that the analysis based on comparing yearly equality figures to yearly growth rates was flawed and misleading because it takes several years for the effects of equality changes to manifest in economic growth changes.
The credit market imperfection approach, developed by Galor and Zeira (1993), demonstrates that inequality in the presence of credit market imperfections has a long lasting detrimental effect on human capital formation and economic development.
The political economy approach, developed by Alesian and Rodrik (1994) and Persson and Tabellini (1994), argues that inequality is harmful for economic development because inequality generates a pressure to adopt redistributive policies that have an adverse effect on investment and economic growth.
Read more about this topic: Economic Growth
Famous quotes containing the words inequality and, inequality, economic and/or growth:
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—Henry David Thoreau (1817–1862)
“The doctrine of equality!... But there exists no more poisonous poison: for it seems to be preached by justice itself, while it is the end of justice.... “Equality for equals, inequality for unequals”Mthat would be the true voice of justice: and, what follows from it, “Never make equal what is unequal.””
—Friedrich Nietzsche (1844–1900)
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—Augustus Y. Napier (20th century)
“Sensuality often accelerates the growth of love so much that its roots remain weak and are easily pulled up.”
—Friedrich Nietzsche (1844–1900)