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High Inequality and Its Impact on the Economy


Francesco Saraceno has a new policy brief out on the impact of increasing inequality on economic growth.
You can read the policy brief here.

Saraceno argues that increasing inequality had deep macroeconomic consequences as it contributed, in combination with credit institutions, to either stagnating aggregate demand or to increasing public and private debt. Inequality may also contribute, along with supply factors, to the drifting towards secular stagnation. Income distribution would then be one of the major determinants of the increasing global imbalances that made the world
economy extremely fragile at the outset of the crisis. The crisis in turn exacerbated inequality, especially in peripheral Eurozone countries.
The path towards sustainable future growth passes therefore from a reduction of inequality that, in particular in European countries, needs to be coordinated.
Finally, if rent-seeking plays an important role in the past increase of inequality, then active fiscal policies and regulation need to be part of the effort to curb inequality.

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