Rising income inequality is at the forefront of public debate both in advanced and in developing economies. Globalization, labor market reforms, and technological advances—all of which tend to favor higher-skilled workers—are important drivers of this divergence of fortunes.
Policymakers and commentators alike have expressed deep concern about the economic and social consequences of the persistent, and often sharp, increase in the share of income captured by higher-income groups. Many think reducing income inequality is crucial to promoting more widespread access to economic, social, and political opportunities.
Some inequality is necessary as an incentive for investment and growth, but there is evidence that when the disparity is too great it can stymie growth (see “Equality and Efficiency,” F&D, September 2011). Recently, a number of prominent experts have argued that rising income inequality was an important driver of the financial crisis.
See full Article: http://www.imf.org/external/pubs/ft/fandd/2012/12/bastagli.htm
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