Please send us your feedback

Inequality

IMF's Work on Income Inequality

CONNECT VIA IMF Podcast IMF Twitter IMF LinkedIn IMF RSS IMF YouTube IMF Flickr IMF Email Notification IMF Social Media Hub
SDR Rates for November 21 SDR Interest Rate = 0.050% | 1 USD = SDR 0.68398 MORE

IMF's Work on Income Inequality


Income inequality has increased in both advanced and developing economies in recent decades. Evidence from public surveys indicates that widening income inequality has been accompanied by growing public demand for income redistribution.

Back to top

Inequality over the Past Century

Back to top

Fiscal Policy and Income Inequality

IMF Staff Policy Paper (2014)

download

Fiscal policy is the primary tool for governments to affect income distribution. Rising income inequality in advanced and developing economies has coincided with growing public support for income redistribution. This comes at a time when fiscal restraint is an important priority in many advanced and developing economies. In the context of the Fund’s mandate to promote growth and stability, this paper describes: (i) recent trends in the inequality of income, wealth, and opportunity in advanced and developing economies; (ii) country experience with different fiscal instruments for redistribution; (iii) options for the reform of expenditure and tax policies to help achieve distributive objectives in an efficient manner that is consistent with fiscal sustainability; and (iv) recent evidence on how fiscal policy measures can be designed to mitigate the impact of fiscal consolidation on inequality. This paper does not advocate any particular redistributive goal or policy instrument for fiscal redistribution.


IMF Direct Blog

iMFdirect blog: Meeting Rising Pressures to Address Income Inequality—A User’s Guide



Listen to postcast

PODCAST: Tax and Spending Ideas to Reduce Inequality

Back to top

Redistribution, Inequality, and Growth

IMF Staff Discussion Note (2014)

download

Economists are increasingly focusing on the links between rising inequality and the fragility of growth. Narratives include the relationship between inequality, leverage and the financial cycle, which sowed the seeds for crisis; and the role of political-economy factors (especially the influence of the rich) in allowing financial excess to balloon ahead of the crisis. In earlier work, we documented a multi-decade cross-country relationship between inequality and the fragility of economic growth. Our work built on the tentative consensus in the literature that inequality can undermine progress in health and education, cause investment-reducing political and economic instability, and undercut the social consensus required to adjust in the face of shocks, and thus that it tends to reduce the pace and durability of growth.


IMF Direct Blog

iMFdirect blog: Treating Inequality with Redistribution: Is the Cure Worse than the Disease?
Many of us have been struck by the huge increase in income inequality in the United States in the past thirty years. The rich have gotten much richer, while just about everyone else has had very modest income growth.

Back to top

Income Inequality and Fiscal Policy

IMF Staff Discussion Note (2012)

download

Income inequality has increased in most advanced and many developing economies over recent decades, reflecting a range of factors including globalization and technological change. Even more striking is the large variation in average disposable (post-tax-and-transfer) income inequality across regions, much of which can be accounted for by differences in the level and progressivity of tax and spending policies. In advanced economies, fiscal policy has played a significant role in reducing income inequality, especially on the expenditure side but also through progressive income taxation. However, reforms since the mid-1990s have lessened the generosity of social benefits and the progressivity of income tax systems in these economies making fiscal policy less redistributive.


IMF Direct Blog

iMFdirect blog: Can Policymakers Stem Rising Inequality?
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.

Back to top

Inequality and Unsustainable Growth: Two Sides of the Same Coin?

IMF Staff Discussion Note (2011)

download

The relationship between income inequality and economic growth is complex. Some inequality is integral to the effective functioning of a market economy and the incentives needed for investment and growth. But inequality can also be destructive to growth, for example, by amplifying the risk of crisis or making it difficult for the poor to invest in education. The evidence has also been mixed: some find that average growth over long periods of time is higher with more initial equality; others find that an increase in equality today tends to lower growth in the near term.


IMF Direct Blog

iMFdirect blog: Warning! Inequality May Be Hazardous to Your Growth
Many of us have been struck by the huge increase in income inequality in the United States in the past thirty years. The rich have gotten much richer, while just about everyone else has had very modest income growth.

Back to top

More or Less

Branko Milanovic (2011)

download

INEQUALITY is growing. Disparities are increasing—between the rich and poor in individual countries, and until recently, between countries. The global financial crisis is keeping real incomes stagnant in advanced economies but it probably narrowed global inequality between citizens of the world, because most developing countries continued with strong growth. Some say that inequality doesn’t matter as long as markets are working efficiently, or if everyone is getting more. Others argue that inequality hampers growth, or that only so much disparity is ethically acceptable.


Listen to postcast

PODCAST: The Rise of Inequality
Inequality is on the rise. Globally, the gap between the rich and the rest has been growing. This September's Finance and Development magazine takes up the theme of inequality. It includes an article by economist and author of a history of global inequality, Branko Milanovic. He explains some of the reasons for the increasing gap between the haves and the have-nots.

Back to top

A Bigger Slice of a Growing Pie

Sarwat Jahan and Brad McDonald (2011)

download

ECONOMIC development and financial development reinforce each other. That should come as no surprise. More varied and more accessible financial services—from banking to insurance to stock markets—permit larger pools of savings to be channeled with increasing efficiency toward productive investments that result in stronger growth. But to the surprise of some, there is mounting evidence that financial development does not merely enlarge the pie, but also divides it more evenly.

Back to top

Unemployed in Europe

Hanan Morsy (2011)

download

THE MOST fragile groups in the European labor market—young, low-skilled, and temporary workers—suffered the most during the global and regional economic crises. And if they remain unemployed for too long, they are likely to lose their skills, become discouraged, and withdraw from the workforce. Unemployment among these groups has aggravated income inequality and runs the risk of shredding Europe’s social fabric, threatening its public finances, and inhibiting growth.


Watch video

Video: Youth Speak Out
Young people, hardest hit by the global economic downturn, are speaking out and demanding change. Coming of age in the Great Recession, the world’s youth face an uncertain future, with lengthening job lines and diminished opportunities.

Back to top

Unequal = Indebted

Michael Kumhof and Romain Rancière (2011)

download

ECONOMISTS have long worried about the growing chasm between countries that borrow heavily internationally and those that dish out the loans. They call it global current account imbalances and, especially since the onset of the global economic crisis in 2007, there has been concern that global markets could be destabilized were there a run on the currencies of those countries that pile up huge deficits. That hasn’t happened, at least so far. In fact, the biggest borrower of all, the United States, is viewed mainly as a safe haven by lenders.


Listen to postcast

PODCAST: Unequal = Indebted
For the last three decades, in many countries, the rich have become ever richer, while the vast majority have seen their incomes stagnate. This increasing income inequality has been coupled with ever greater debt burdens. How did we get to this point? IMF economists believe they have some answers, drawing a link between higher inequality and increased debt.