The Distribution of Wealth and the Pace of Development

Economists have long been interested in the relationship between the distribution of income and the rate of economic growth. Two propositions have tended to dominate the literature. The first, associated with the name of Simon Kuznets, asserts that the degree of inequality varies systematically with the level of income per head, initially increasing as incomes rise and then, beyond some point, decreasing with further increases in income per head.1 The second proposition, often associated with Arthur Okun, asserts that there is a ‘great trade-off’ between equality and efficiency and hence policy interventions intended to reduce inequality have a high cost in terms of a lower average income.2 Taken together, the two propositions have been used to argue against public policies intended to create a less unequal society, since the Kuznets proposition indicates that in the long run policy interventions are unnecessary and the Okun proposition indicates that in the short run they are harmful.