First guess: Inequality matters the most
Academics and politicians worry about inequality – they claim that when inequality is too high, political disturbances can take place. Education and healthcare developments are also generally considered difficult to achieve when income inequality is too high. However, research shows we can't claim that inequality is a good predictor for future growth.
The Gini coefficient (which measures overall income distribution) is used as a rough predictor of whether a country is going to thrive or not. However, when the Gini coefficient is employed, it skews the outlook. Income gaps between millionaires and billionaires affect the coefficient much more than similar differences among members of poor or the lower middle class.
Prosperity for everyone?
With a recent working paper prepared by the business school INSEAD, Income Distribution and Economic Development: Insights From Machine Learning, the researchers wanted to find out how inequality affects the quality and availability of the country's schooling, the quality of its institutions and income per capita.
They found out that when we want a purely predicative view, poverty itself matters more than any other distributional statistic.
Tackling poverty instead of income inequality will lead to success. That would mean abandoning policies aimed at supporting the middle class at the expense of the rich, such as eliminating tuition at public universities. Governments should aim to wipe out poverty and then society as a whole would benefit more.
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