Regional Conference: Redistribution Has More Upsides than Downsides

  • Redistribution is on average conducive to growth
  • Asia’s recent growth accompanied by increased inequality
  • Redistributive fiscal policy should be consistent with macroeconomic objectives, tax, and expenditure
  • The finding was highlighted at a high-level seminar, which took place in Tokyo on 12-13th March, of government officials, academics, and representatives of international organizations from all over Asia who met to discuss the issue of inequality, its implications for growth, and possible policy responses.

    The seminar—the newest in a series on macroeconomic and financial policies—was jointly organized by Hitotsubashi University and the IMF’s Regional Office for Asia and the Pacific (OAP), and funded by the government of Japan.

    The gathering was opened by the Director General of the International Bureau of the Japanese Ministry of Finance, Masatsugu Asakawa, and Hitotsubashi University Professor, Akira Ariyoshi, who highlighted the meeting’s aim of strengthening policy making capacity and fostering economic cooperation in Asia.

    Negative relationship between inequality and growth

    Jonathan Ostry, Deputy Director of the IMF’s Research Department, presented the conclusions of his recent research into inequality, which suggests that the pro-equality effect of redistribution more than offsets any direct adverse effect from redistribution, unless the latter is extreme.

    “Inaction about inequality is unlikely to be appropriate in many cases, and we should not jump to the conclusion that the treatment for inequality—redistribution—may be worse for growth than the disease itself,” said Ostry.

    Ostry’s findings on the links between inequality, growth, and redistribution build on his earlier work which documented a robust negative relationship between inequality and the sustainability of growth: more unequal societies have more fragile growth.

    But that left unanswered whether the cure of redistribution, which may itself undermine growth, is worse than the disease of inequality itself. The main findings of Ostry’s most recent work are that higher inequality tends to be associated with lower growth, more unequal countries tend to redistribute more, and redistribution is, on average, pro-growth.

    Recent trends and thinking on inequality

    Deputy Chief Economist of the Asian Development Bank, Juzhong Zhuang, reviewed the trends and drivers of inequality in Asia, stressing that while the region’s high growth has led to large reductions in poverty, this...

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