Alex Adrianson of the Heritage Foundation’s “Insider Online” blog highlights an interesting new analysis of the links between income redistribution and economic growth.
Kevin Hassett explains the chart: …
To measure how much a country redistributes, we looked at how much government policy changes that coefficient. The more taxes and transfers from the government reduce the coefficient, the more redistributive that government is.
The chart examines the recent experience of national economies in the wake of the financial crisis for the 47 countries for which there were sufficient Gini-coefficient data. The vertical axis plots how much redistribution there was in each country in 2008. The horizontal axis plots the rate of per capita national-income growth that each country averaged during the four years between 2008 and 2012. In some sense, then, the chart asks the question, “To what extent does variation in the size of the welfare state in 2008 explain variation in how economies recovered from the crisis between 2008 and 2012?”
As one can see in the chart, which contains the raw data and a highly statistically significant regression line through the data points, the data show a clear pattern: the heavy redistributors have done much worse. Indeed, the statistical relationship suggests that moving a nation’s redistributive apparatus from that of the typical country in the sample to that of the U.S. would have increased the expected growth rate of per capita national income over this period by a full percentage point.
