What is equity?

Equity in economics is the analysis of equality and opportunity. Equality studies how resources in the economic system are distributed—distribution of income, wealth and consumption–and opportunity studies mobility, that is, how likely are you going to succeed depending on where you start in the economic distribution.

What is the link between equity and growth?

So, orthodox economists think inequity and inequality is good for growth because it motivates people to work hard. However, this maybe be true in models where markets work perfectly but in reality, this is not a good description of the world. The key idea is a simple one. If talented people are poor, they can not invest in their education or develop their business ideas, and hence, if there is a more equitable distribution of resources, those people will be able to develop their economic potential. So in that sense, equity can be favorable to growth.

What policies can promote equitable growth?

So, the government can affect equity and growth in many ways so there are many dimensions to the problems so in the end, it's really an empirical question. We have to go policy by policy and understand which one works and which one doesn't. But in the short run, in the United States's case, inequality has increased so much, with so much of economic growth going to the top of the income distribution, that a natural place to start to redistribute resources would be to increase taxation on the rich, both for redistribution and also to raise the revenue we need for the many policy priorities that will be needed in the medium term.