Treating Inequality with Redistribution: Is the Cure Worse than the Disease?


By Jonathan D. Ostry and Andrew Berg

(Version in EspañolFrançaisPortuguêsРусский中文)

Rising income inequality looms high on the global policy agenda, reflecting not only fears of its pernicious social and political effects, (including questions about the consistency of extreme inequality with democratic governance), but also the economic implications. While positive incentives are surely needed to reward work and innovation, excessive inequality is likely to undercut growth, for example by undermining access to health and education, causing investment-reducing political and economic instability, and thwarting the social consensus required to adjust in the face of major shocks.

Understandably, economists have been trying to understand better the links between rising inequality and the fragility of economic growth. Recent narratives include how inequality intensified the leverage and financial cycle, sowing the seeds of crisis; or how political-economy factors, especially the influence of the rich, allowed financial excess to balloon ahead of the crisis.

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Support the People, Not Energy in the Middle East and North Africa


Masood AhmedBy Masood Ahmed

(Versions in عربي, 中文, Français, 日本語Русский, and Español)

Of all the regions in the world, the Middle East and North Africa region stands out as the one that relies the most on generalized energy subsidies. In energy-rich countries, governments provide subsidies to their populations as a way of sharing the natural resource wealth. In the region’s energy-importing countries, governments use subsidies to offer people some relief from high commodity prices, especially since social safety nets are often weak.

The question is: does this well-intended social protection policy represent the most efficient way to channel aid to the most vulnerable? The answer is no!

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Building on Latin America’s Success


Christine Lagarde

By Christine Lagarde

(Version in Español)

Next week, I will travel to Latin America—my second visit to the region since November 2011. I return with increased optimism, as much of Latin America continues its impressive transformation that started a decade ago.

The region remains resilient to the recent bouts in global volatility, and many countries continue to expand at a healthy pace. An increasing number of people are escaping the perils of poverty to join a growing and increasingly vibrant middle class.

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Top 20 — iMFdirect’s Top 20 list


Three years after the launch of iMFdirect as a forum for discussing economic issues around the world, we look back at some of our most popular posts.

The IMF blog has helped stimulate considerable debate about economic policy in the current crisis, on events in Europe and around the world in Asia, Africa, Latin America, and the Middle East, on fiscal adjustment, on regulating the financial sector, and the future of macroeconomics–as economists learn lessons from the Great Recession.

As readers struggled to understand the implications of the crisis, our most popular post by far was IMF Chief Economist Olivier Blanchard’s Four Hard Truths, a look back at 2011 and the economic lessons for the future.

Here’s our Top 20 list of our most popular posts by subject (from more than 300 posts):

1.  Global Crisis: Four Hard Truths; Driving With the Brakes On

2.  Financial Stability: What’s Still to Be Done?

3.  Fiscal Policy:  Ten Commandments ; Striking the Right Balance

4.  Macroeconomic Policy: Rewriting the Playbook;  Nine Tentative Conclusions ; Future Study

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Can Policymakers Stem Rising Income Inequality?


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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Global Crisis — Top Links from the IMF for Economics and Finance


Our top links for June, 2012 from iMFdirect blog and others:

Latin America—Taking the Helm


By Christine Lagarde

Managing Director of the International Monetary Fund

(Version in Español)

The eyes of the world are locked on Europe these days. This is understandable. After all, the storm in the euro area casts a long shadow over the entire global economy.

But the IMF has 187 members, and my job is to serve each and every one of them as effectively as possible. For this reason, I am making it a point to visit the different regions of the world—to discuss, to listen, to learn.

This week, I am visiting three important countries in Latin America—Brazil, Mexico, and Peru—a trip coinciding with the transfer of leadership in the Group of 20 to Mexico. Like so many in the region, these countries have done remarkably well over the past few years. They have harvested the fruits of strong fundamentals, sound policy frameworks, and prudent macroeconomic policies and are now enjoying sustained growth with reduced vulnerabilities—an enviable sweet spot.

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