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Lucas vs. Lucas: On Inequality and Growth

Author/Editor: Cordoba, Juan Carlos | Verdier, Geneviève
Authorized for Distribution: January 1, 2007
Electronic Access: Free Full Text (PDF file size is 559KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: Lucas (2004) asserts that "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." In this paper we evaluate this claim using an extended version of Lucas' (1987) welfare-evaluation framework. Surprisingly, we find that the welfare costs of inequality outweigh the benefits of growth in most cases. These calculations support the case for a research agenda that treats not only growth but also inequality as a priority.
 
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Series: Working Paper No. 07/17
Subject(s): Poverty | Economic growth | Business cycles
Author's keyword(s): Welfare costs | business cycles | economic growth | inequality
 
English  
    Published:   January 1, 2007        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA2007017   Pages:   39
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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