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Does slow growth increase inequality?

Our SIGMA model explores the hypothesis that slow growth rates lead to rising inequality. This case has been made most notably by French economist, Thomas Piketty. If true, this would pose serious challenges to the project of achieving Prosperity without Growth or meeting the ambitions of those who call for an intentional slowing down of growth on ecological grounds.

To test the hypothesis, we developed a simple four-sector, demand-driven model of Savings, Inequality and Growth in a MAcroeconomic framework (SIGMA) with exogenous growth and net savings rates. We then used SIGMA to explore the evolution of inequality in the context of declining economic growth.

Contrary to the general hypothesis, we find that inequality does not necessarily increase as growth slows down. In fact, there are certain conditions under which inequality can be ameliorated significantly, or even entirely eliminated, as growth declines.

The results are described in our PASSAGE working paper (No 15/03) ‘Does slow growth lead to rising inequality?’. The paper also discusses the implications of our findings for questions of employment, government policy and the politics of de-growth. An updated version of our research has been published in the journal Ecological Economics.

Interested readers can explore the implications for themselves in the online beta version of SIGMA below. Alternatively, please try to access the model from the ISEE website directly.