Lucas vs. Lucas: On Inequality and Growth
IMF Working Papers, January 1, 2007
Source details
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- Lucas vs. Lucas: On Inequality and Growth
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Bibliographic details
- Authors: Juan P Cordoba
- Published: January 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451865813.001
Summary
- Lucas (2004) asserts: "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."
- This paper evaluates that claim using an extended version of Lucas' (1987) welfare-evaluation framework.
- The paper finds that "the welfare costs of inequality outweigh the benefits of growth in most cases."
- The calculations support a research agenda that treats not only growth but also inequality as a priority.
Key findings and analysis
- The welfare-evaluation framework used is an extension of Lucas (1987).
- Main empirical or theoretical conclusion: welfare costs of inequality outweigh benefits of growth in most cases.
- Subject areas listed: Business cycles, Consumption, Consumption distribution, Income, Income inequality.
- Keywords listed: economic growth, WP.
Policy implications and recommendations
- Research agenda recommendation: prioritize both growth and inequality rather than focusing solely on growth.
- The findings imply that addressing inequality can have large welfare payoffs that may exceed gains from growth under many scenarios.