Trade off between Economic Growth and Inqualities in the Distibution of Income??? (1 Viewer)

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Need help guys! I'm having a little trouble understanding this concept.

Is there conflict that arises with achieving both economic growth and distribution of incomes? If so why or why not???/

 

[wolfhunter2]

Especially with fiscal policy, i believe that there is a massive shortfall in the distribution of income objectives vs the long term economic growth objectives. For example, if the Government were to income social welfare payments, then they are helping the distribution of income and wealth, however in this process they are also causing a missallocation of funds from those who would use these funds to fund future capital and growth. Hence hindering economic growth. Although if they choose to cut higher income taxes, they are hopefully aiming in increasing business expenditure, thus expanding job growth and increases to the distribution of income and wealth.

Hence it all depends, but generally (as shown above) all policies to improve economic growth should have the trickle down effect of improving the equality in the distribution of income.

 

[williamc]

Especially with fiscal policy, i believe that there is a massive shortfall in the distribution of income objectives vs the long term economic growth objectives. For example, if the Government were to income social welfare payments, then they are helping the distribution of income and wealth, however in this process they are also causing a missallocation of funds from those who would use these funds to fund future capital and growth. Hence hindering economic growth. Although if they choose to cut higher income taxes, they are hopefully aiming in increasing business expenditure, thus expanding job growth and increases to the distribution of income and wealth.

Hence it all depends, but generally (as shown above) all policies to improve economic growth should have the trickle down effect of improving the equality in the distribution of income.

??? Your first paragraph and second argue two completely different ways.

As you stated in your first paragraph, government welfare policies aimed at improving income inequality are most likely going to cause a missallocation of funds, or in other words, placing funds in areas not most likely to multiple the investment into higher levels of output (inefficent areas!). So why doesn't the government just rid any forms of these inefficiencies, because if they invested their money in the right areas they would foster a higher level of economic growth, and thus unemployment would fall. It's because social problems would rise significantly. If you look into any country's with high levels of income inequality, they have significant social problems which will infract on their ability to produce output. Have a look at brazil for example, their social problem (crime etc) is biggest problem at the moment.

If you look at the country's with the highest levels of economic growth, they all typically have high levels of income inequality. It's a trade off policy makers must analyse and then put in practice so the majority can benefit. An attempt to ensure the same given level of Y amongst a population (a communist state) has shown to lead to a very low level of economic growth.