Vol.:(0123456789) Empirical Economics https://doi.org/10.1007/s00181-019-01815-0 1 3 Inequality, redistribution, and growth: new evidence on the trade‑of between equality and efciency Jaejoon Woo 1 Received: 5 January 2018 / Accepted: 21 November 2018 © Springer-Verlag GmbH Germany, part of Springer Nature 2020 Abstract The past several decades have seen a signifcant and sustained increase in income inequality across many countries. Against this backdrop, some policymakers and economists are calling for distributive policies to address the rising inequality directly. Yet, there has been little systematic analysis of whether and how redistribu- tion afects economic growth. To our knowledge, this is the frst paper that system- atically analyzes and presents evidence in a large panel of countries over 1965–2010 that redistribution can involve a non-trivial “trade-of” between equity and growth. Making it richer and more interesting, evidence also shows that the degree of trade- of between equity and growth tends to vary with the initial level of market income inequality and the size of redistribution itself. Extensive robustness checks confrm the results. Keywords Inequality · Gini coefcient · Redistribution · Growth · Trade-of between equity and efciency JEL Classifcation H30 · O40 · I38 · D30 · D60 1 Introduction The last decades have seen a signifcant and sustained increase in (within-country) income inequality in many advanced and emerging market economies, with a nota- ble exception for some developing countries in Latin America and sub-Saharan Africa that have had historically high income inequality (see OECD 2012; IMF 2014). By some estimates, income and wealth inequality in some countries are near their highest levels since the nineteenth century after more than 40 years of declin- ing inequality following the Great Depression (see Atkinson et al. 2011; and Piketty * Jaejoon Woo jaejoon.woo@gmail.com 1 Kellstadt Graduate School of Business, DePaul University, 1 East Jackson Boulevard, Chicago, IL 60604, USA