A recent IMF study of several countries provides robust evidence that a high level of income inequality weakens the prospects of sustained economic growth and reduces the duration of growth spells. Redistributive steps, by contrast, do not have a noticeable negative effect on growth. Therefore, a reduction in inequality that is achieved through redistributive steps could have a net pro-growth effect. The policy challenge for South Africa is to find the best policy mix to achieve that.

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Written by Andrew Donaldson, Deputy Director-General and Acting Head: Government Technical Advisory Centre, National Treasury

This article was first published on the Econ3x3 website – Accessible policy-relevant research and expert commentaries on unemployment and employment, income distribution and inclusive growth in South Africa.