Is inequality a problem we can solve?

There is no a strict tradeoff between growth and inequality because economic institutions matter. Institutions and the incentives that they create lead to vastly different levels of inequality between countries with similar income levels. In this chapter we examine policies that impact domestic inequality, while keeping a keen eye on the potential costs of these policies in terms of reducing efficiency and production. This includes evaluating structural reform policies that change the workings of markets (such as changes in labor laws, creating more market competition, and improving education) and fiscal policies that transfer resources from the richer to the poorer citizens (such as increasing the progressiveness of taxation and providing universal guaranteed incomes). The purpose here is to understand the policy menu that governments have to choose from when they set a goal to reduce inequality.