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Featuring Andrew Berg
Assistant Director and Chief of the Development Macroeconomics Division, Research Department, International Monetary Fund
Introduction Nancy Birdsall
President, Center for Global Development
Q & A Vijaya Ramachandran
Senior Fellow, Center for Global Development
Economists are increasingly focusing on the links between rising inequality and the fragility of growth. The relationship between inequality, leverage and the financial cycle which sowed the seeds for 2007-08 global financial crisis, together with the disproportionate political influence of the rich, create a narrative of excess. Andrew Berg will discuss the effect of this narrative on the financial crisis in his new paper, coauthored with Jonathan Ostry and Charalambos Tsangarides.
The authors offer three key findings. First, more unequal societies tend to redistribute more. This makes it imperative that we understand the relationship between growth and inequality, in order to distinguish between market and net inequality. Second, this distinction allows us to see that lower net inequality is robustly correlated with faster and more durable growth. Finally, redistribution appears benign in its impact on growth; only in extreme cases is there evidence of a negative effect on growth. They conclude that combined direct and indirect effects of redistribution are, on average, pro-growth, when the growth effects of resulting lower inequality are taken into account.