The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Lucas (2004) asserts that "Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution... The potential for improving the lives of poor people by finding different ways of distributing current production is nothing compared to the apparently limitless potential of increasing production." In this paper we evaluate this claim using an extended version of Lucas' (1987) welfare-evaluation framework. Surprisingly, we find that the welfare costs of inequality outweigh the benefits of growth in most cases. These calculations support the case for a research agenda that treats not only growth but also inequality as a priority.