The IMF launched a new working paper on the issue of redistribution. An important working paper because it shows that redistribution doesn’t obstruct growth.

IMF has recognized in recent years that one cannot separate issues of economic growth and stability on one hand and equality on the other. Indeed, there is a strong case for considering inequality and an inability to sustain economic growth as two sides of the same coin. Central to the Fund’s mandate is providing advice that will enable members’ economies to grow on a sustained basis. But the Fund has rightly been cautious about recommending the use of redistributive policies given that such policies may themselves undercut economic efficiency and the prospects for sustained growth. The new paper follows up the previous one on inequality and growth by focusing on the role of redistribution. It finds that, from the perspective of the best available macroeconomic data, there is not a lot of evidence that redistribution has in fact undercut economic growth (except in extreme cases). One should be careful not to assume therefore that there is a big tradeoff between redistribution and growth. The best available macroeconomic data do not support such a conclusion.

From their research they draw three conclusions:

• more unequal societies tend to redistribute more. This seems logical because unequal societies to become less unequal have to redistribute more than more equal societies
• lower net inequality (after taxes and transfers) seems to drive faster and more durable growth for a given level of redistribution. This is an important conclusion. Different countries with a same level of redistribution will have different growth and this depends on their level of net inequality. Lower net inequality enhances growth more than higher net inequality
• redistribution appears generally benign in its impact on growth

The IMF is very cautious about drawing definitive policy implications. Understandable, because these conclusions undermine the policy recommandations they use to give countries. The research cannot establish the causality, but the paper gives food for new research and new policies.

It gives us nonetheless enough arguments to say that our proposals on redistribution and social investment are benign for economic development.

See more on http://www.imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf