Does redistribution hurt growth? An empirical assessment of the redistribution–growth relationship in the European Union

This paper examines the impact of inequality and redistribution on economic growth in the EU. While past research finds inequality harms long-term growth, the effects of redistribution remain debated. Using panel data from 25 EU countries (2007–2019), we introduce the Net Benefit Share as a measure for targeted redistribution. Our findings show that market inequality boosts short-term growth, but redistribution targeted to low-income households further enhances it mainly via the consumption channel. In contrast, redistribution to high-income earners and pensioners reduces growth. These results highlight the importance of well-targeted redistributive policies for economic performance. • The paper examines the impact of inequality and redistribution on economic growth in the EU. • We introduce the Net Benefit Share (NBS) to measure targeted redistribution. • Targeted redistribution to low-income households boosts growth through consumption and investment. • Redistribution to high-income earners and pensioners has a negative impact on economic growth. • The results suggest that well-targeted redistributive policies are crucial to increase growth.