Why income gaps matter: The Treasury and the tricky issue of inequality

Abstract

The income gap between rich and poor, which is now much larger in most developed countries than it was 30 years ago, has become one of the more pressing problems facing both the public and policy makers. One approach to this problem of (in)equality is to argue that the income gaps themselves are concerning, and should be narrowed. If we think of the income distribution as a ladder, this is the equivalent of saying that the rungs on the ladder are too far apart. A second approach, however, is to say that income gaps per se are not of concern; what matters is whether people can move freely between those different incomes – whether they can jump, as it were, from one rung to another. There are still other approaches, of course, but the contrast between these two is very revealing and merits closer scrutiny.