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2017| Increasing Inequality Reduces Long-term Growth German Economic Analysis Using a Macroeconomic Structural Model

By: Hanne Albig, Marius Clemens, Ferdinand Fichtner,
Stefan Gebauer, Simon Junker, Konstantin Kholodilin

Political and public debate in Germany has for some time seen growing discussion of the connection between increasing income inequality and economic growth. This discussion was instigated by a number of international empirical studies (OECD 2015; Ostry et al. 2014) that found indications of a negative link between more income divergence, on one hand, and development of the economy, on the other.

From a theoretical standpoint the macroeconomic effects of inequality are ambiguous. The economic literature has identified a number of channels through which changes in wealth and income distribution can affect overall economic development. In this  ontext, there are theoretical and empirical arguments both for negative and positive effects of increasing inequality on economic growth.

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