This document discusses the concepts of redistribution and economic growth, and the relationship between the two. It defines redistribution as the transfer of economic resources from wealthier to poorer individuals through policies like taxation and welfare. Economic growth is defined as the increase in production of goods and services over time, often measured by GDP. The document explores the debate around whether redistribution promotes or hinders growth, noting arguments on both sides. It also outlines different forms redistribution can take, such as progressive taxation, education/health investments, land reform, and public goods provision. The conclusion is that while scholars disagree on the impact, certain types of redistributive policies like education spending and public finance can potentially increase both social justice and economic growth.

1. Rural Development: Approaches,
Discourses and Theories (MARD
511
Lesson : Redistribution with Growth
By
Khemraj Subedi
Associate Professor
Tikapur Multiple Campus
M.Phil
PhD Scholar
Unit 5 : Alternative
Rural Development
Approach

2. What is meant by redistribution?
 Redistribution refers to rearranging transfer of economic resources
From well off people to befit worse off people through economic
policy shift on an economy-wide basis.
 In other words, redistribution of income and wealth is the transfer
of income and wealth (including physical property) from some
individuals to others by means of a social mechanism such as taxation,
charity, welfare, public services, land reform, fiscal policy, monetary
policy, and confiscation.
 The term typically refers to redistribution on an economy-wide basis
rather than between selected individuals.

3. What is growth (economic growth)?
Economic growth is an increase in the production of
economic goods and services, compared from one
period of time to another.
It can be measured in nominal or real (adjusted for
inflation) terms.
Traditionally, aggregate economic growth is
measured in terms of Gross Domestic Product
(GNP) although alternative metrics are sometimes
used.

4. Economic growth cont….
 In simplest terms, economic growth refers to an increase in
aggregate production in an economy.
 That leads to an increase in incomes, inspiring consumers to
open up their wallets and buy more, which means a higher
material quality of life or standard of living.

6. Redistribution With Growth
 Trickle -down theory: increase increase in growth rates enables
enables the poor to derive maximum benefits.
 Growth is good for the poor (Dollar & Kraay, 2000)
 Yet in rare cases the economic growth might increase inequality and
offset gains of the poor from the economic growth (Esanov, 2006).
 Kuznet’s (1955) inverted-U predicts rise in inequality at early periods
of high and rising growth rates and fall in inequality during later
periods.
 Okun’s (1975) treatise on equality and efficiency argue that greater
income inequality is an incentive for work and investment.

7. Practice of Redistribution
 Redistributive policies attempt to take wealth, income, and
other resources from the "haves" and give them to the "have-
nots",
 Different types of economic system feature varying degrees of
interventionism aimed at redistributing income, depending on
how unequal their initial distributions of income are.
 Free-market capitalist economies tend to feature high degrees
of income redistribution.
 The socialist planned economies do not allow to own private
property and non existence of inequality problem.

8. Forms of redistribution
 The redistribution of wealth and its practical application are bound to change with
the continuous evolution of social norms, politics, and culture.
 Governmental redistribution of income may include a direct benefit program
involving either cash transfers or the purchase of specific services for an individual.
 Developed countries income inequality has become a widely popular issue that has
dominated the debate stage for the past few years.
 Redistributing wealth comes from the implementation of a carefully thought out
well described system of taxation.
 The implementation of such a system would aid in achieving the desired social and
economic objective of diminishing social inequality and maximizing social welfare.
 Progressive system of taxation to achieve a certain level of income redistribution.

9. Forms of Redistribution cont…
 Progressive-rate income tax policy as redistributive, because some of the tax
revenue goes to social programs such as welfare and Medicare.
 Other common types of governmental redistribution of income
are subsidies and vouchers.
 Medicare is a government-run health insurance program that covers people
age 65 or older, certain younger people with disabilities.
 Wealth redistribution can be implemented through land reform that transfers
ownership of land from one category of people to another, or through
inheritances taxes or direct wealth tax.
 Economies also implement unemployment benefits as redistribution measure.
 Legislation of minimum wage fixation program.

10. Measures of Redistribution
 Redistributive fiscal policies (pprogressive taxation and transfer payments),
 Improving access and quality of education,
 Providing better and wider access to health and nutrition,
 Improve access to credit markets through financial inclusion policies;
 Better access to public goods like the internet, mobile telephones, clean
water and sewerage, electricity, and so forth (through broader provision of
such goods by the government).
 Land reform to ensuring ownership of land as means of livelihood,
 Ownership of housing to poor and destitute,

11. Conclusions
 Scholars are not in consensus on whether redistribution promotes growth.
 Redistribution via direct transfer may ensure social justice but stagnates growth.
 Redistribution via improvement in land ownership(land reform) may increase land productivity and ensure
social justice.
 Redistribution via improving in access and quality of education will upgrade labour productivity and
eventually promotes growth.
 Redistribution via public finance will increase productivity and growth.
 Redistribution through monetary policy will ensure better access to money market and capital market thereby
increasing investment and growth.
 Redistribution through better healthcare, nutrition, drinking water, housing will upgrade productivity of
human capital thereby increase growth.
 Redistribution through better provision of public goods like public transportation, electricity, communication
service, judicial system, defence, law and order and security reduce cost and promote growth.
 Public policies that potentially have redistributing effects may facilitate growth by publicly providing for
insurances against risks such as unemployment, disabilities, and old age that markets cannot (efficiently)
provide for.

12.  Okun, A.M. (1975). Equality and Efficiency: the Big Trade-Off
(Washington: Brookings Institution Press).
 Dollar, D., T. Kleineberg, and Kraay, A.(2000). “Growth Is Still Good for
the Poor,” Policy Research Working Paper No. 6568 (Washington: World
Bank).
 Kuznets, S. (1955) Economic Growth and Income Inequality, Anzrican
Economic Review 45(1):1-28.
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