Inequality: Five facts you should know

Inequality levels differ widely across countries, and is correlated with a number of important variables. Professor Edward L. Glaeser of Harvard University writes about Inequality in a recent working paper (also available here) that provides a very useful summary of what we know. Here is the abstract:

This paper reviews five striking facts about inequality across countries. As Kuznets (1955) famously first documented, inequality first rises and then falls with income. More unequal societies are much less likely to have democracies or governments that respect property rights. Unequal societies have less redistribution, and we have little idea whether this relationship is caused by redistribution reducing inequality or inequality reducing redistribution.

Inequality and ethnic heterogeneity are highly correlated, either because of differences in educational heritages across ethnicities or because ethnic heterogeneity reduces redistribution. Finally, there is much more inequality and less redistribution in the U.S. than in most other developed nations.

What are the policy implications? Gleaser concludes:

The implications of inequality research for public policy are far from clear. Alesina and Rodrik (1994) suggest that inequality deters growth because inequality leads to costly redistributionary policies. Even if this were the right interpretation of the small inequality-growth correlation, then it would hardly make sense to try to fight inequality with redistribution since, according to this model, redistribution is the problem that inequality creates. The literature on the political economy of inequality does not give clear answers on policies, but it does suggest that shifts in inequality may influence polities in far-ranging, substantial, and often unpredictable ways.

Comments

[AJE]

Don't take it personally, but my thoughts on this are as follows:

http://thefilter.blogs.com/thefilter/2005/10/facts_on_inequa.html