I’ve finally gotten around to a careful read of the new IMF paper on redistribution and growth (pdf) — which concludes that there is no negative effect of redistributionist policies, at least within the range we normally see, and quite possibly a positive effect from the reduction in inequality. I like this conclusion, politically — which is a good reason to kick the tires, and I’ll present some cautions in a later post. For now, however, a quick-and-dirty piece of data analysis inspired by the paper’s method.

Ostry et al measure redistribution by the difference between the Gini coefficient (a measure of inequality) before and after taxes and transfers. The LIS project, with which I will soon be associated, has done this for a number of countries (pdf), so we can all do such exercises.

So what I found myself thinking about was the common trope on the right that the economic crisis is the result of overlarge welfare states. This is generally stated not as a hypothesis but as a fact. But what do the data say?

First, look at a sample of advanced countries, and compare the LIS measure of redistribution with their economic performance in the first five years of the ongoing economic crisis:

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There is a suggestion of a slight negative correlation, and if you fit a regression line it is indeed downward-sloping, although the slope isn’t significant. But you can see right away that this result is driven by the relatively good performance of Anglo-Saxon countries that arguably gain from not being on the euro.

Suppose we restrict the sample to countries on or pegged to the euro (Denmark). It looks like this:

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There is, it turns out, a fair bit of variation among euro area countries in the amount of redistribution — and there is actually a positive correlation between redistribution and growth over the post-crisis period, significant at the 10 percent level.

Overall, the data offer no reason to believe that the economic crisis has something to do with the welfare state — an empirical observation that will have no impact whatsoever on the right’s convictions.