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    Equity vs. Growth

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    For a developing country to grow, it needs capital. The major source of capital in most countries is domestic saving, but the goal of stimulating domestic saving usually is in conflict with government policies aimed at reducing inequality in the distribution of income. Comment on this trade-off between equity and growth. How would you go about resolving the issue if you were the president of a small, poor country?

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    Step 1
    There is a misunderstanding that economic growth leads to increase in inequality in income and wealth. This is not necessarily true. Inclusive growth is possible. Still, there is the strong perception that economic growth leads to greater income and wealth for the rich.
    One reason for this is that in several small countries when the government is confronted with tough issues like inflation, governance, and increasing poverty, they point to high growth rates. They behave as if the high ...

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