Although income inequality cannot be completely controlled, policymakers have a variety of tools at their disposal to produce changes in how the economic pie is divided. Those that most readily come to mind fall into the category of explicit redistribution, which can be controversial. But a second set of tools, rather than explicitly redistributing income within a society, focuses on creating an economic context in which growth can occur and in which that growth can be distributed more equally.

Political Economy: Conditioning Markets to Reduce Income Inequality

By , , Feature

It is now very much old news that economic inequality has risen dramatically in the United States and many other developed democracies over the past 30 years. This dramatic increase has produced a flurry of discussion over how severe the increase has been, how much of a problem inequality really is and what can and should be done about it.

While inequality is resurgent as an issue in U.S. politics, it has a much longer and more prominent history in middle- and low-income countries. This is likely due to the fact that inequality in developing countries has historically been much higher than in the developed world. The highest levels of inequality in the world, for example, are in Latin America and Africa. And in these contexts, economic inequality takes on additional importance because it is coupled with low average incomes and in many places extreme poverty. It’s harder to argue that income inequality is not an important problem where inequality exists alongside abject poverty. ...

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