9.8%, 6.0% and 3.1%, respectively, between 1990 and 2005) has not
led to more equal societies, but rather made the rich relatively richer
and the poor relatively poorer (see top and bottom quintiles).
Perhaps most interestingly income inequality is significantly
decreasing in countries like Brazil, Malawi and Malaysia, which have
also experienced strong and consistent economic growth in recent
years (they all experienced an average annual GDP per capita
growth of roughly three percent between 1990 and 2005, which
increases to 2.1%, 4.4% and 7.9%, respectively, if controlling for
the impacts of the late-1990s Asian financial crisis) (Figure 19).
Figure 19. GDP Growth and Decreasing Inequality in
Selected Countries, 1990-2005Source: World Bank (2011), UNU-WIDER (2008) and Eurostat (2011)
This suggests that, ultimately, addressing inequality depends on a
society’s willingness to reduce social disparities by financing
equitable policies through taxes and investments. Addressing equity
is at the center of the social contract between governments and
citizens: how much a society is willing to redistribute and how to do
so. But what happens if a society is unwilling or unable to address
inequality?
- Why Income Inequality is Dysfunctional
There is a vast literature documenting the effects of income
inequality across a broad spectrum of economic and social
indicators. It is not our purpose to offer a detailed review or to
debate the merits of some of the more controversial topics,
especially in terms of causality. Rather, the aim of this section is
simply to highlight some of the key perils that are associated with