Can Policymakers Stem Rising Income Inequality?

Posted on June 28, 2012 by iMFdirect

By David Coady and Sanjeev Gupta

The issue of rising income inequality is now at the forefront of public debate. There is growing concern as to the economic and social consequences of the steady, and often sharp, increase in the share of income captured by higher income groups.

While much of the discussion focuses on the factors driving the rise in inequality—including globalization, labor market reforms, and technological changes that favor higher-skilled workers—a more pressing issue is what can be done about it.

In our recent study we find that public spending and taxation policies have had, and are likely to continue to have, a crucial impact on income inequality in both advanced and developing economies.

In advanced economies, this is especially important given that the ongoing fiscal adjustment needs to be continued for many years to reduce public debt to sustainable levels. But it is equally important in developing economies where inequality is relatively high.

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Filed under: Advanced Economies, Civil Society, Economic research, Emerging Markets, Employment, Globalization, growth, Inequality, Politics, Public debt | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , | 10 Comments »

Beyond the Austerity Debate: the Deficit Bias in the post-Bretton Woods Era

Posted on May 21, 2012 by iMFdirect

By Carlo Cottarelli

(Version in Español)

The austerity vs. growth debate has raged in recent months, pitting those who argue that fiscal policy should be tightened more aggressively now to bring down high levels of debt, even though economic growth remains weak, against those who want to postpone the adjustment to better times. This is a critical issue for policymakers, perhaps the most important one in the short run.

And yet, this debate—which, mea culpa, I have myself contributed to―is attracting too much attention.

This is bad for two reasons:

  • The debate is driven, to some degree, by ideology and is therefore more focused on the relatively limited areas of disagreement than on the far broader areas of agreement. Most economists would agree that fiscal consolidation is needed in advanced economies, and that the average annual pace of adjustment during 2011-12―about 1 percentage point―is neither too aggressive nor excessively slow. Most economists would also agree that countries under pressure from markets have to adjust at a faster pace, while those that do not face such constraints have more time. Of course, there is disagreement on some aspects of the fiscal strategy, but it relates to specific country cases.
  • The debate is detracting attention from policy issues that may seem less urgent, but which are nevertheless critical in the medium term. I am referring to what I would call the institutional gaps in fiscal policymaking that still exist in most advanced and emerging economies. These gaps have contributed to a bias in the conduct of fiscal policy in favor of deficits that is behind many of the current problems.

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Filed under: Advanced Economies, Economic Crisis, Economic outlook, Economic research, Emerging Markets, Employment, Europe, Finance, Fiscal policy, Globalization, growth, Inequality, International Monetary Fund, Investment, Politics, Public debt | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , | 18 Comments »

Shared Frustrations: How to Make Economic Growth in Sub-Saharan Africa More Inclusive

Posted on October 19, 2011 by iMFdirect

By Antoinette M. Sayeh

(Version in Français)

Suddenly it’s the thing everyone is talking about. Income inequality. Not just between countries, but inequality within countries.

In North Africa and the Middle East, jobless youth sparked the Arab Spring. In the United States, the growing gap between rich and poor is the “meta concern” of the Occupy Wall Street movement. Worldwide, frustrations appear to be on the rise.

What about sub-Saharan Africa? Sustained economic growth has certainly produced some tremendous advances. But a large proportion of the population is still living in poverty. So frustrations about the inclusiveness of growth are also shared within the region.

Complex story

Is the story really as negative in sub-Saharan Africa as the relatively slow reduction in the incidence of poverty and some people’s frustration suggest? Or is the underlying situation a little more complex?

In July, I wrote about the importance of inclusive growth and whether economic growth was a necessary or a sufficient condition for poverty reduction. The IMF’s latest Regional Economic Outlook for Sub-Saharan Africa takes that thinking a step further. The new analysis looks at how living standards for the poorest households have actually been changing in some countries in the region.

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Filed under: Africa, Economic outlook, Français, growth, Inequality, International Monetary Fund | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , | 3 Comments »

Beyond Growth: the Importance of Inclusion

Posted on July 7, 2011 by iMFdirect

By Antoinette Sayeh

(Version in  Français)

Economists care about growth.  Governments care about what it can achieve:  more jobs and more income for more people.  An increasing number of African countries have been growing robustly for more than a decade. But while growth is a necessary condition for poverty reduction and employment creation, is it also sufficient?

When growth first takes off, it is typically associated with steady progress in several dimensions of poverty reduction: incomes rise and countries are able to finance more spending on health and education, which translates into much-needed progress toward the Millennium Development Goals. But after this initial spurt, other questions arise. In particular, a number of countries are increasingly concerned about how inclusive growth is; are the benefits well-spread or do they accrue only to the few? (more…)

Filed under: Advanced Economies, Africa, Economic Crisis, growth, IMF, Inequality, International Monetary Fund, LICs, Low-income countries | Tagged: , , , , , , , , , , , , , , , , , , , , , , | 3 Comments »

Making up for Lost Time: Getting Back on Track to the Millennium Development Goals

Posted on September 20, 2010 by iMFdirect

By Hugh Bredenkamp and Catherine Pattillo

Many of the world’s macroeconomists—including here in the IMF—are currently busy reading the daily tea-leaves, attempting to divine whether the sputtering recovery in the advanced economies will hold, and gradually pick up steam, or fall back into the notorious “double dip.”

There is a huge amount at stake here, not only for the millions of unemployed in the developed world, but also for the many hundreds of millions of our fellow global citizens in developing countries who live in dire poverty, without access to proper health, education, or sanitation. The world’s economies are now closely interconnected, and the fate of those in poor countries is tied, increasingly, to that of the richest. (more…)

Filed under: Africa, Economic Crisis, growth, IMF, International Monetary Fund, LICs, Low-income countries | Tagged: , , , , , , , , , , , , , , , , , , , , | 3 Comments »

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