I promised that I would share some nagging concerns about the Ostry et al paper on redistribution and growth (pdf); I think I can usefull phrase my concerns in terms of my favorite comparison on these matters, which is between the United States and France.

Why this pair? Because we’re talking about two advanced countries that clearly have similar levels of technological competence but have made very different social choices; in particular, France not only does much more redistribution, it has expanded its redistribution over time, limiting the rise in overall inequality, while the United States has not (see Table 4 here (pdf)).

So how have the countries’ destinies compared during the New Gilded Age? French growth actually has been somewhat slower, although hardly the catastrophe the country’s incessant bad press might lead you to expect:

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Even more strikingly, however, the level as opposed to the growth rate of French GDP per capita is substantially lower than that of the US.

This is my main concern about Ostry et al. Suppose we think that strong redistributionist policies reduce the level of output — but that it’s a one-time shift, not a permanent depression of growth. Then you could accept their result of a lack of impact on growth while still believing in serious output effects.

Now, the IMF researchers arguably have answered this objection by also including the current level of GDP per capita in their regressions; their regressions indicate that a country with lower GDP per capita than the US should be growing faster than the US, other things equal. So any level-depressing effect of redistribution should show up as a failure of this faster growth to materialize, i.e., as a negative coefficient on redistribution. But I’m uneasy about whether this is good enough.

Interestingly, French underperformance is a matter of low labor input rather than low productivity:

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Once you delve into this low labor input, it starts to look like the result of some very specific policies rather than redistribution in general: a pension system that encourages early retirement, regulations that give the French shorter hours and much more vacation time than we get.

Overall, I am still mostly persuaded by the Ostry et al work, but I think we need to acknowledge that it’s not quite as slam-dunky as liberals might like.