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What does inequality mean for growth?Economic policies in the real world are nuanced and site-specific, making the search for a single answer to the question of how – and how much – inequality affects growth a Sisyphean task.Rather than concerning themselves with how to balance growth and inequality, policymakers would be better off focusing on how policies impact average incomes and other welfare indicators.Policies that simultaneously boost growth and reduce inequality are the easiest to evaluate and the most advantageous to adopt. It is far more difficult to evaluate policies that involve a trade-off between growth and inequality.I will analyze a 10 percent reduction in labor taxes paid for by a lump-sum tax using a neoclassical Ramsey growth model.
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