Income Inequality

Topic: Income Inequality

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3. Should we be concerned with the degree of income inequality within both the advanced and developing counties and, if so, what should be done about it?

Picketty’s (2014) Capital in the Twenty First Century, Stiglitz’s (2012) The Price of Inequality and Atkinson’s (2015) Inequality – What Can be Done? have all drawn attention to the remarkable increase in inequality in the last thirty years or so and also the increase in the share of wealth and income of the top one percent, especially in the UK and the US.

The World Bank and the IMF has extended this concern to the developing countries. In particular, their studies have found that an increase in income inequality lowers the rate of economic growth. Implicit in these arguments is that this degree of inequality is in some sense socially undesirable. However, a defence of the earnings of the top one percent has recently been put forward by Mankiw (2013).

Carefully assess these arguments and the policies that have been suggested to reduce inequality. However, if inequality is not a cause for concern are the suggested policies likely to do more harm than good?

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