## A Fair Shot ## Source details **Canonical URL:** [A Fair Shot](https://www.imf.org/-/media/files/oap/oap-home/2021/ch2fair-shotpresentationfmspring-21.pdf) ## Other formats - [Markdown version](/-/media/files/oap/oap-home/2021/ch2fair-shotpresentationfmspring-21.pdf.md) - [Structured JSON version](/-/media/files/oap/oap-home/2021/ch2fair-shotpresentationfmspring-21.pdf.json) --- ### Inequality and COVID-19: key findings - The IMF Fiscal Monitor (June 15, 2021) finds that inequalities made COVID-19’s impact worse, and COVID-19 escalates inequality. - Average education losses from school closures (March–December 2020) were estimated relative to students’ usual progress; losses are larger for children of “Low education parents” (parents whose highest level of education is lower secondary school). - Cross-country regression estimates indicate that one-standard deviation increases in certain factors are associated with higher COVID-19 deaths: fewer hospital beds, higher relative poverty, larger shares of population 70+ (%), and higher urban population (%). Sources cited include Our World in Data, OxCGRT, World Bank, and IMF staff calculations. - Education losses and COVID-19 mortality effects are more severe for lower-income families and in developing economies. ### Pre-existing inequality trends and interlinkages - Inequality increased in most Advanced Economies (AEs) and large Emerging Market Economies (EMEs) over the last three decades (change in Gini between 2019 or latest year and 1990s). Source: IMF Income Gini Database; World Economic Outlook. - A “vicious circle of inequality” is documented: various aspects of inequality are closely related and mutually reinforcing. - Coverage: analysis covers 45 countries of all income levels for SDG index correlations. - Inequality of opportunity is measured as Gini index of mean incomes of “circumstance-homogeneous” groups (circumstances include gender, race, nationality, family background, birthplace). - Intergenerational persistence analysis covers 55 countries; first available income/consumption Gini is from 1965–85, and persistence uses the 1960 or 1970 cohort (whichever is available). ### Pre-distributive and re-distributive policy roles - The IMF highlights education (pre-distributive) and social assistance plus income & wealth taxes (re-distributive) as public policies that can create a virtuous circle toward fairer societies. ### Education: spend more and spend better - Gaps in secondary school enrollment between richest and poorest quintiles remain substantial in many regions. - Analysis covers 38 emerging market economies over the period 2000-18. - Panel regressions with country fixed effects show that higher government spending in primary education (as a share of GDP) increases enrollment, especially for children from households in the bottom quintile. - Regional groupings referenced: CCA, Emerging Europe, LAC, Emerging Asia, SSA, MENAP. ### Social assistance: targeting coverage and adequacy - Cash transfers have the largest impact on poverty, but spending is not always allocated in line with best use. - Poverty reduction is defined as the difference between poverty headcount after and before transfers divided by poverty headcount before transfers. - Data for coverage and adequacy span the most recent year available, ranging between 2008-18. Coverage = share of low-income households who benefit; adequacy = ratio of social assistance benefits relative to an individual’s pre-transfer income. - Countries with social assistance spending that combines high coverage and high adequacy show effective poverty reduction (examples keyed from ASPIRE database and IMF staff estimates). ### Tax reforms needed to finance basic services - Tax policies have become less progressive, including declines in top marginal labor and capital taxes. - Comparison snapshot: top tax rates on labor and capital incomes in 1980/81 and 2016 or latest available year for a group of OECD countries (sources include Harding and Marten (2018); Carey and others (1993)). - Policy recommendations to raise progressivity and tax capacity: - Raise top PIT rates, if feasible - Consider temporary progressive surcharges - Eliminate loopholes in capital income taxes - Expand CIT and VAT bases - Increase excises and carbon taxes - Raise property tax rates and expand its base - Strengthen inheritance and gift taxes ### Financing SDGs: more spending and greater efficiency - Additional spending required to meet SDGs by 2030 is large in health, education and infrastructure (updated estimates of Gaspar and others (2019) with methodological refinements). - Inefficiency estimates use Data Envelopment Analysis: - Health output: life expectancy; input: total per capita health expenditure. - Education outputs: test scores and net enrolment rates; input: public education spending per student (PPP). - Infrastructure output: volume and quality of infrastructure; input: public capital stock and GDP per capita. - Governments should reduce large sectoral spending inefficiencies to meet SDG targets. ### Public preferences, trust, and political economy - Surveys (ISSP 2016; IMF staff estimates) suggest majority preference for more tax-financed spending on education, health and pensions, especially in emerging market economies. - Most respondents in most countries believe the tax burden is too high for low- and middle-income households relative to high-income households. - Trust in government matters: - Unmet basic needs are associated with mistrust in government. - Individual-level estimates from 23 AEs and 12 EMEs show that a one-standard deviation decline in trust is associated with shifts in preferences (e.g., move toward education/health spending, spending reallocation, views on progressive taxation). - Perceptions of government capacity and corruption are related to trust in government (individual-level data from 14 AEs and 9 EMEs). ### Support for progressive taxation after the pandemic - Evidence from a US survey (October 2020, Klemm and Mauro (2021)) indicates higher support for a temporary income tax levy among households directly affected by the pandemic (“Suffered under pandemic” = respondent or a relative lost employment or became seriously ill with COVID-19). - Groups labeled “Universalist” and “Communitarian” show differing levels of support; results caution that: - It is not known for how long this effect will last. - Similar analyses are needed in other countries. - It is not known whether unfavorable views about progressive taxation have become more entrenched. ### Conclusions and policy implications - The IMF Fiscal Monitor (June 15, 2021) concludes: - Both pre-distributive and re-distributive policies can break the vicious circle of inequality, which has become stronger after the pandemic. - People’s preferences for access to basic public services and for progressive taxation are strong and likely rising after the pandemic. - Governments need to provide better access to basic services (including vaccines) and social safety nets, while strengthening transparency, accountability and efficiency; failure to do so could erode trust and lead to more divided societies. --- _Source: https://www.imf.org/-/media/files/oap/oap-home/2021/ch2fair-shotpresentationfmspring-21.pdf_