OECD Secretary-General Angel Gurria said: "This compelling evidence proves that addressing high and growing inequality is critical to promote strong and sustained growth and needs to be at the centre of the policy debate.
"Countries that promote equal opportunity for all from an early age are those that will grow and prosper."
The report concluded that growth rates in the United States, Britain, Sweden, Finland and Norway would be more than 20 percentage points higher if income inequality had not widened. And growth rates in New Zealand and Mexico would have been 10 percentage points higher.
They compared gross domestic product growth rates between 1990 and 2010 with what they estimated they would have been if inequality had not changed.
Mr Key, who became prime minister in 2008, said that under the OECD's own measure, inequality between 2007 and 2011 had actually narrowed.
Mr Key was accused by Greens co-leader Russel Norman of operating "trickle-down" economics - by which the gains of the wealthy are said to be automatically passed on to the lower paid.
Mr Key said it was wrong to characterise National's approach to economics as "trickle-down".
"The Government is providing billions and billions of targeted income and welfare support to the most vulnerable New Zealanders every year."
The most important thing the Government could do for beneficiaries was to find them work, he said.
Mr Little criticised Mr Key for loan-to-value ratio limits, saying the New Zealand Institute of Economic Research has attributed it to a rise of 45 per cent in house purchases by house speculators, and a fall by first-home buyers.
Mr Key pointed out the policy was introduced by the independent Reserve Bank and that Labour had actually supported LVRs when they were first introduced.
"Without that, interest rates would have gone up by at least half a basis point for all New Zealanders, and that would have had a very significant impact on lower-income New Zealanders."
