Income Distribution: Effects on Growth and Development - Working Paper 118

In development, does inequality matter? In this working paper, CGD president Nancy Birdsall reviews a large body of work, primarily of economists, indicating that beyond some level, inequality in developing countries does matter because: (1) where markets are underdeveloped, high income inequality is likely to inhibit growth; (2) high income inequality can discourage the evolution of the economic and political institutions associated with accountable government (which in turn enable a market environment conducive to investment and growth); and (3) high income inequality can undermine the civic and social life that sustains effective collective decision-making, especially in multi-ethnic settings.