It is a common assumption that greater equality—whatever its moral appeal—is bad for economic prosperity. Incentives are what drive well-functioning capitalist economies—when everyone earns the same income, efforts to be productive or to make profitable investments will be dimmed and the engine of the market economy will slow down. It follows that redistributive fiscal policies will be particularly harmful: the resulting reduction in inequality will stymie growth and the taxes that are used to engender equity will dim incentives, undercutting economic efficiency and the basis for enduring prosperity.
Good and bad inequality
Redistributive policies have not been harmful
Over the long haul, countries that have managed to limit excessive inequality are countries that enjoy both faster growth and more sustainable growth.Jonathan D. Ostry