Why the rich getting richer is bad for growth

New IMF research shows that an increase in the income share of the poor boosts the whole economy



“When the rich get richer, a country’s economic health can suffer. But if the poorest members of a society start climbing the wealth ladder, then national growth can receive a boost.”

That’s the conclusion of IMF researchers, whose new report shows that income distribution itself, not just income inequality, matters for growth.

Specifically, the research shows, growth declines over the medium term if the income share of the top 20 per cent increases. This seems to refute the theory of ‘trickle down’ pretty conclusively.

In contrast, an increase in the income share of the bottom 20 per cent (defined as ‘the poor’) is associated with higher GDP growth.

In December, an OECD paper said that the impact of inequality on growth stems from the gap between the bottom 40 percent with the rest of society, not just the poorest ten percent.

The IMF also emphasises the importance of boosting the incomes of both the poor and middle class, who ‘matter the most for growth via a number of interrelated economic, social, and political channels’.

The IMF finds that making the rich richer by one percentage point lowers GDP growth in a country over the next five years by 0.08 percentage points. Making the poor and the middle class one percentage point richer, it says, can raise GDP growth by as much as 0.38 percentage points.

Richard Murphy, writing for Tax Research UK, interprets the research as effectively saying that wealth makers are those at the bottom of society, not the top.

As the IMF points out, the poor and the middle class tend to consume a higher fraction of their income than the rich. So if more money flows to these segments of society, they will consume rather than save. This will raise demand and boost aggregate growth in the short term.

So, as Murphy writes, reducing inequality means making sure that those who are best able to deliver growth have the opportunity to do so.

Ruby Stockham is a staff writer at Left Foot Forward. Follow her on Twitter

31 Responses to “Why the rich getting richer is bad for growth”

  1. OldLb

    Wrong diagnosis.

    The rich are getting richer because they are investing and getting capital growth.

    The working poor are not, because the socialist numpties take their surplus income and redistribute it. All the NI goes. So they have no capital. They end the year where they started with no capital.

    # So if more money flows to these segments of society, they will consume rather than save.

    The rich don’t, so they are getting richer.

    Do some thinking Ruby. You’re just spouting stats that you think back up your case when its the opposite.

  2. Keith Salt

    IMF researhers = spouting stats?

    Don’t most working poor get tax credits not surplus income?

    Consumption = growth / Savings = depends on real rate of return.

    Think it’s you that needs needs to do some thinking

  3. steroflex

    chief Christine Lagarde suggested in an interview with UK’s Guardian
    that the Greeks should pay their taxes. It turns out Ms.
    Lagarde—legitimately—doesn’t pay them herself. In fact, her IMF salary
    of $467,940 plus an $83,760 additional allowance is not subject to any taxes.29 May 2012

    IMF’s Christine Lagarde: ‘I Don’t Pay Taxes, But You Should …


  4. Cole

    So you really think the ‘working poor’ would invest and get rich and invest if it wasn’t for taxes? You must live on a different planet.

    The working poor have largely been taken out of income tax. What actually happens is we taxpayers have to subside their wages because the McDonalds of this world won’t pay them properly. Personally, I don’t want to subsidise McDonalds and think they should pay decent wages.

  5. blarg1987

    there are a variety of reasons the rich are getting richer, part of it may be down to government reducing corporation tax and removing stamp duty of share dividends.

    Taxation is not necessarily the problem, but lack of good employer / staff relations allowing staff to negotiate a good pay deal may be a larger issue.

  6. OldLb

    Take Mr Median. Nearly 5K in NI contributions each year.

    So instead of giving their surplus money to someone else, it goes into an account in their name.

    On McDonalds, I partially agree. Go and ask the customers to pay more. In McDonald’s case, its a non tradeable good, so you can force them to pay more, and it’s then down to the customers, do they pay or do they not. If they don’t then McDonald’s workers lose their jobs.

    The workers also lose benefits, they have to pay more tax.

  7. OldLb

    What’s the total NI contributions for Mr Median Wage?

  8. OldLb

    Doesn’t matter. No employee will get richer if the state spends their surplus income and they spend the rest. They will have no capital at the end of the year.

    If you’re an anticapitalist, celebrate your success of lots of poor people. Poor people by definiton have no capital

  9. blarg1987

    So you also agree that no employee will get richer if their employer does not pay them more either then?

    You can;t have it all one way otherwise your argument is untenable.

    The alternative is that you have employees use a pay per use service which could cost more and still be poor which means they need a higher pay package to compensate.

  10. Cole

    And Mr Median would end up spending his money on health insurance because there would be no NHS and probably on paying for his kids education because that would have been wound down too. And what kind of lunatic puts a relatively small amount into a stock market investment? Even a financial advisor would tell you that’s daft. Meanwhile we’re subsidising large corporations and failing to tax many of them on their profits.

  11. OldLb

    No. 97% of NI goes on pensions.

    Nothing to do with the NHS.

    But since you want to rip off the poor carry on.

    They end the year with no capital, where they started, because you took their money.

    Then you get the Greek mess in the UK.

  12. OldLb

    So you also agree that no employee will get richer if their employer does not pay them more either then?


    Crap. That’s you plan. Screw the workers. Take their money, redistribute it, then screw them in their old age.

    If they put their NI into a fund in their name they will no longer be poor.

    Take their money and give it to someone else they will remain poor.

    97% of their NI goes to someone else, not on services they receive.

  13. David Davies

    The 1% tend to be fraudsters who elect not to pay tax, along with the fine example set by Ms Lagarde.

    The rest of us have no choice in picking up the burden for bank bailouts, vanity projects that will inevitably be gifted to the tax dodging fraudsters at some future date; whilst suffering the brutality of tory austerity.

  14. blarg1987

    And your plan is to screw workers by removing the state forcing them to take on private provision for everything costing even more for the same or inferior service provision thus they still remain poor.

    Last time I checked car, travel and household insurance is exactly the same I do not hear you screaming from the roof tops about that.

  15. MarkRKuhn

    Your first choice leftfootforward Find Here

  16. OldLb

    You a con artist.

    The state owes 9,200 bn for pensions

    Add on the borrowing and that is 400K per taxpayer.

    The state has made people poor.

    My guess is you’re a civil servant in on the scam. You need people to hand over their pension money and you get your wages from it.

    You don’t give a toss about the public, just so long as you get your money.

    It’s just like Greece and people who promote that sort of economy are scum

  17. OldLb

    ing even more for the same or inferior service provision thus they still remain poor.


    Where are the assets for the money people have given you for theiir pension.

    Youve’ spent the lot. So they are still poor.

    Evil. Really evil. Out doing even Maxwell, Enron and Ponzi.

  18. Jacko

    Yet again, you try to pass off a discussion paper as official IMF policy.

    It is not, and you know it. This is printed in bold capitals on page 1 of the report.

    “DISCLAIMER: This Staff Discussion Note represents the views of the authors and does
    not necessarily represent IMF views or IMF policy. The views expressed herein should
    be attributed to the authors and not to the IMF, its Executive Board, or its
    management. Staff Discussion Notes are published to elicit comments and to further

    LFF = intellectual fraud.

  19. Cole

    Not correct. In 2013, £21bn out of £106bn of the money spent from NI went to the NHS. And the NHS is quite popular, for good reason, though hated by right wingers.

  20. Cole

    The average UK salary is about £26,500. Employee NI on this would be about £2,100.

  21. blarg1987

    Interesting, I mentioned the private insurance industry does the same and you go silent on that point and attack me on a made up assertion.

    For the record I am not a civil servant.

  22. OldLb

    I ask you if you relied on the state for income and hence other people’s pension contributions.

    Private insurance? Irrelevant. There is no insurance involved at all.

    It’s investment, not insurance.

    So come on, how are you going to pay 400K of debt?

    If you can’t then the poor get screwed on their pension.

  23. blarg1987

    your quote:

    “My guess is you’re a civil servant in on the scam. You need people to hand over their pension money and you get your wages from it.”

    And I replied directly to that.

    So are you telling me, after I stop private insurance policy I get a return on my investment, in which case where is it? I am still waiting for my car insurance investment as I have never made a claim otherwise stones and glass houses come to mind.

  24. OldLb

    Investment is not insurance.

    SO how much does the state owe for pensions?

  25. blarg1987

    So why does the insurance industry invest my payments on the stock market?

    And how much is the insurance industry owe for property and assets?

  26. OldLb

    Note. I have not said anything about the insurance companies and a capital based pension. Pensions as I propose are nothing to do with insurance.

    However, insurance companies do not as a whole invest in the stock market. They invest premiums in bonds, because the state insists on it. First to match assets against projected liabilities. Secondly because the state wants to borrow on the cheap. Force people to lend and you dictate the interest rate. Cheap lending to the government at your expense with higher premiums. Lastly because its premiums up front for payouts later.

    So what is wrong with an insurance company matching assets and liabilities? Or would you rather they took your premiums as profits and not paid out on their side of the deal?

  27. blarg1987

    As I said earlier which you did not reply to:

    “Last time I checked car, travel and household insurance is exactly the same I do not hear you screaming from the roof tops about that.”

    But you keep complaining about state insurance policies.

    Finally not necessarily true, insurance premiums increased after the financial crash, as the insurance industry admitted that it has lost money due to the financial crisis. in effect admitting it had invested in the stock market.

    Secondly the insurance industry does not match its assets and liabilities, if it had then premiums would not have gone up after we had heavy snow a few years ago as it would have already covered that liability which it failed to do so.

  28. Faerieson

    This is in fact increasingly widely believed to be the case, basic economics would seem to support the premise. That is to write, that if those at the bottom cannot afford to spend enough to support the ever-inflated lifestyles of the uber-wealthy, then even many of those at the top of the wealth pyramid may not continue to ‘thrive.’

    Current trends towards the accelerated widening of the wealth divide and the increased concentration of far-beyond-obscene volumes of wealth for a diminishing number of individuals conforms precisely to this model. The fact that such partial interests as those of the IMF might, in any way whatsoever, be connected to this report should be of serious concern to everyone. But, whether this is informs wider debate or not, the current economic pathway is unsustainable.

  29. Cole

    LB always gets personal and insists anyone who opposes his daft views must be on the take.

  30. Cole

    LB always gets personal and insists anyone who opposes his daft views must be on the take.

  31. RealityCheck

    I say give the Rich Billions instead of Millions.

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