REDISTRIBUTION, INEQUALITY, AND GROWTH: GVAR APPROACH

Abstract

This article investigates the effect of gdp redistribution in 33 economies in the period 1980Q1-2019Q4, using the gvar model. Redistribution shocks increase gdp to a greater extent in groups of countries with greater inequality, losing their effectiveness in more egalitarian groups. Credit and investment stood out as potential transmission channels for these shocks. By incorporating financial development, the shocks of inequality no longer harm production in most cases. Similarly, the interaction between financial development and redistribution enhanced the effect of redistribution on the production of more egalitarian groups. This evidence suggests that financial development can bring benefits to redistribution and reduce the harm of inequality. Finally, we found significant heterogeneity in the responses of the gdp of each economy to redistributive shocks, suggesting that domestic specificities are relevant for the understanding of redistribution policies.