Wealth gap ‘hinders growth’

Published: Tuesday 9th December 2014 by The News Editor

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The growth rate in the UK would have been higher had the gap between rich and poor not widened in recent decades, a report from an international economic think-tank has found.

Addressing the issue of income inequality would boost a country’s economic growth, the Organisation for Economic Co-operation and Development (OECD) said.

Countries where income inequality is falling grow faster than those with rising inequality, the body’s latest report states.

It found that an increasing gap between the haves and have nots has knocked almost nine percentage points off gross domestic product (GDP) in the UK, 10 in Mexico and New Zealand and between six and seven in the US, Italy and Sweden in the two decades pre-recession.

OECD secretary general Angel Gurria said: “This compelling evidence proves that addressing high and growing inequality is critical to promote strong and sustained growth and needs to be at the centre of the policy debate.

“Countries that promote equal opportunity for all from an early age are those that will grow and prosper.”

It is the gap between the bottom 40% and the rest of society, not just the poorest 10%, that contributes to the effects of inequality on a country’s growth, the paper said.

The report is part of the think-tank’s efforts to find the root causes and see what lessons can be learned from the global financial crisis.

Anti-poverty programmes are not enough to tackle the problem, the OECD warned, claiming “education is the key”.

The paper claims to have discovered new evidence that the main way inequality affects growth is by undermining education opportunities for children from poor socio-economic backgrounds, lowering social mobility and hampering skills development.

While the children of parents who have had low levels of education see t heir educational outcomes deteriorate as income inequality rises, there is little or no effect on people whose parents have had a middle or high level of education, it said.

The paper states that investment is needed in high-quality education, training and healthcare in order to create greater equality of opportunities, and it claims redistributing taxes and benefits does not harm a country’s economic growth so long as the policies are “well-designed, targeted and implemented”.

Published: Tuesday 9th December 2014 by The News Editor

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