## wpiea2021111-print-pdf

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---

### Introduction: objectives and scope
- Purpose: take a holistic review of policies and actions that were effective in making growth inclusive, drawing case studies from different regions and development levels.
- Key questions addressed:
  - How have countries fared along different dimensions of inclusive growth?
  - What have been countries’ experiences with implementing reforms to improve inclusive growth?
- Case study selection: Nordic countries (Denmark, Finland, Norway, Sweden); select EMDEs—India, Brazil, Egypt.
- Framing observation: access to basic services (health, education, infrastructure, finance) is correlated with per capita income (Cerra, forthcoming), but correlation is not determination.

### The Nordic model of inclusive growth — overview and quantitative pointers
- Characteristic strengths:
  - High employment and productivity generate resources to support strong social services.
  - Flexibility to adapt to trade and technology developments.
- Key elements and quantitative pointers:
  - Cooperative labor markets: low wage dispersion (wage dispersion measured as decile 9/decile 1, in percent).
  - Competitive markets and innovation: relatively high R&D spending and firm-level digitalization.
  - Strong social services and welfare underpinned by sound fiscal policy: government spending high relative to GDP; Finland and Denmark at around 55 percent of GDP.
  - Taxation: personal income taxes among the highest in the OECD; labor tax wedge contained; corporate income tax revenue modestly below OECD average.
  - Gender equity: high female labor participation supported by parental leave, subsidized childcare, scope for shorter working hours; gender wage gaps among the smallest in OECD.
  - Climate policy ambition: net zero / GHG reduction targets and dates shown in source; estimates of annual costs for adaptation (in percent of GDP) shown in source: Denmark 1.7, Finland 1.6, Norway 4.2, Sweden 4.4.

### Nordic country case studies — policy features and outcomes
- Denmark (flexicurity):
  - Employer flexibility combined with security via active labor market policies (ALMPs), high mobility, comprehensive income safety net.
  - High ALMP spending; unemployment insurance funds support laid-off workers for up to two years with high replacement rates for low-income groups (up to 90 percent of previous earnings).
  - Reforms: 2011 pension reform linking statutory retirement age to life expectancy; 2018 tax reform increasing deductions for pension contributions.
  - Challenges: youth inactivity rise since the crisis due to high skills needed; increasing skill shortages; cumbersome access to skilled foreign labor.
  - Well-being: Denmark ranks among the highest on World Happiness Report (index range in source includes values such as 6.4–8.0 with FIN, DNK, NOR among top).
- Sweden ("Swedish model"):
  - Three pillars: (i) flexible labor market — coordinated wage formation and ALMPs; (ii) universal welfare system as social rights; (iii) economic framework promoting openness and stability (Riksbank targets 2 percent inflation).
  - Outcomes: steady real wage growth aligned with productivity; high female employment and highest employment rate in the EU (example employment rates shown: 77.1, 75.3, 75.0, 73.0 for top countries).
  - Challenges: unemployment rates of foreign-born and low-skilled exceed natives; history of concentrated wealth, high regional inequality, one of the fastest increases in inequality in recent years.
- Transferability:
  - Nordic sustainability relies on social trust, high tax compliance, social norms favoring work, and relative ethnic/cultural homogeneity—limiting wholesale exportability.
  - Elements like flexicurity have been incorporated into EU guidance (European Council common principles of flexicurity 2008; Employment Committee monitoring indicators 2012).

### India: reforms, inclusion, and quantitative signals (1990–2020)
- Growth and poverty:
  - GDP grown almost 5 fold since the 1990s; per capita income increased by 4 times (source WEO October 2020).
  - India growing at an average of above 7 percent in the last decade.
  - Despite progress, approximately 270 million people still considered poor.
  - Historical poverty change (1993–2012): population in poverty fell from 403.7 million (45.3 percent) to 269.8 million (21.9 percent).
- Inequality and GIC findings:
  - Net Gini for consumption has been gradually increasing; urban inequality drives much of the rise.
  - Growth Incidence Curve (1983–2011) observed growth rates:
    - National aggregate: 1st decile grew by 1.7 percent; 10th decile grew by 2.38 percent.
    - Rural areas: 1st decile grew by 1.75 percent; 10th decile grew by 1.95 percent.
  - Urban lower deciles: growth incidence 1.25 percent (lesser than the rural bottom 10 percent 1st decile); 10th decile urban growth 2.5 percent.
- Redistribution and DBT (Direct Benefit Transfer) evolution and amounts:
  - DBT formally announced 2013; JAM trinity (Jan Dhan, Aadhar, Mobile) integrated with PMJY created more than 410 million bank accounts.
  - DBT transfer amounts:
    - almost 1,034 million USD in 2013/14;
    - almost 33,660 million USD in 2018 (approximately 1.3 percent of India’s GDP);
    - approximately further 27,757 million USD till early-2021.
  - More than 50 percent increase in transfers since 2013 data first shared.
  - MGNREGS accounted for an average of 2.3 percent of GDP in 2008.
- Macro and policy environment:
  - Adoption of inflation targeting in 2016 by the Reserve Bank of India (RBI) helped reduce fiscal dominance and the influence of inflation on real incomes of India’s poor.
  - Structural reforms: 1990s liberalization; recent GST and IBC cited as stabilizing investor environment.
- DBT scenarios and caveats:
  - If efficiency gains fully reinvested into DBT, could produce strong income growth for the poor and reduce inequality between lower and top deciles.
  - If gains used elsewhere, inequality reduction could be lower.
  - Continued DBT expansion over next 5-10 years could substantially grow incomes for the 10th and 20th decile levels.
  - Challenges: greater JAM penetration needed, tracing/eliminating fake recipients, infrastructure for scale, data privacy and micro-data access concerns.

### Brazil: growth constraints, social programs, and policy implications
- Growth performance and constraints:
  - Since 2000, Brazil grew slower than EMDEs and emerging Asian economies; deep recession in 2015-2016.
  - Gross national saving and total investment averaged 18-19 percent of GDP in the 2010s and declined by 1-2 percent of GDP in the 2010s.
  - Public pension spending about 14 percent of GDP in 2018.
  - Pension features: low retirement age (54 vs 64 years in the OECD), generous benefits relative to earnings (70 vs 53 percent in the OECD).
  - Pension reform (approved October 2019) expected to reduce spending by 11 percent of GDP over ten years relative to the counterfactual without reform.
- Inclusive policies and outcomes:
  - Poverty rate declined from 9.9 to 2.4 percent between 2000–2014; increased during 2015–2016 recession.
  - Informality declined from 34 to 28 percent of adults between 2005 and 2015.
  - Bolsa Familia Program (BFP) launched 2003:
    - In 2015 BFP constituted 0.44 percent of GDP.
    - About 60 percent of the poorest quintile receive CCTs; about 80 percent of CCTs go to the two poorest quintiles.
    - In 2018, more than 20 percent of the population was enrolled in BFP.
    - 90 percent of direct recipients are women.
  - Female labor force participation rose from 42% in 1990 to about 55% in 2004 and stabilized thereafter.
  - Women’s wages: 53 percent of men’s wages in 1995; 70 percent in 2014.
  - Gini declined from 58.4 to 51.9 between 2000–2014 (survey-based).
  - Tax-data evidence: top 10 percent received around 55 percent of total income between 2001–2018 (stable).
- Policy implications:
  - Need to improve education access and quality gap between private and public schools.
  - Address long-term constraints: increase domestic savings, fiscal sustainability, and carry out pension reform to support growth.

### Egypt: macro stabilization, social programs, perceptions, and measurement issues
- Growth and macro context:
  - Egypt averaged about 4 percent growth over the past two decades, mainly driven by capital deepening.
  - By 2016 large macro imbalances (budget deficits, loose monetary policy, fixed exchange rate) reduced reserves, raised inflation, and increased public debt with rising unemployment, especially among women and youth.
  - Home-grown reform program supported by IMF EFF concluded late 2019; reforms included targeted cash transfers, reducing energy subsidies, and policies to increase female labor participation.
- Inequality measures versus perceptions:
  - Official Gini ranged from 32.8 in 1999 to about 31.5 in 2017.
  - World Values Survey: group in favor of income equality >35 percent in 2012 (up from 2.6 percent in 2001); group tolerant of inequality fell to 10 percent in 2012 (down from 32.8 percent in 2001).
  - The “MENA inequality puzzle”: perceptions of high inequality contrast with stable and low measured Gini.
- Measurement challenges and evidence:
  - Household surveys may miss top incomes; alternative methods suggest higher urban Gini (house-price-based revision from 0.36 to 0.47).
  - Education inequality: probability of a boy from a poor family enrolling in university estimated at 9 percent vs 97 percent for a boy from a most advantaged family; TIMSS scores indicate considerable educational inequality.
- Social protection and fuel subsidy reform:
  - Phasing out fuel subsidies freed budget room for better-targeted social spending, health, education, and infrastructure.
  - Takaful (conditional) and Karama (unconditional) cash transfer programs enrolled about 2.25 million families.
  - IFPRI evaluation (late 2018) found about 89 percent of sample very or somewhat satisfied; about 93 percent reported no difficulties receiving support.
  - These transfers helped households increase consumption by about 8.4 percent versus non-recipients.
- Policies for female and youth employment:
  - Expanded public nurseries and facilitation of home-based nurseries; joint Ministerial committee and gender budgeting initiatives.
  - Programs: Forsa (job creation, early 2018); Mastoura (microcredit to women; covered more than 6000 projects in first phase 2017).
  - Outcome: female labor participation increased from 21.8 percent in 2017 to 22.1 percent in 2020.

### Cross-cutting observations, lessons, and policy implications
- Common levers associated with inclusive growth in high-performing examples:
  - High employment via flexible labor markets combined with strong ALMPs and social safety nets.
  - Substantial public investment in education and health for human capital formation.
  - Sound fiscal policy and moderate public debt to provide fiscal space.
  - Broad tax bases and third-party reporting reduce avoidance/evasion and support revenues for services.
  - Policies supporting female labor participation (parental leave, subsidized childcare) correlate with higher female employment and narrower gender wage gaps.
  - Ambitious climate targets require alignment of mitigation and adaptation investment planning to avoid undermining inclusivity goals.
- Implementation caveats and trade-offs:
  - High ALMP spending does not automatically raise employment for the low-skilled (Denmark example).
  - Labor institutions that deliver high de-facto minimum wages may impede wage adjustment for lower-skilled workers (Sweden example).
  - Social and cultural preconditions (trust, norms, homogeneity) affect feasibility and sustainability of redistributive/high-tax models.
  - EMDEs face constraints (poor infrastructure, weak governance, large rural populations) limiting direct replication but allowing selective adaptation of Nordic features.
- Role of technology and data:
  - India’s digital IDs and JAM trinity enabled expansion and more efficient administration of public transfers, reduced corruption, and expanded financial inclusion.
  - Distributional statistics matter for policy design; perceptions of inequality depend on perceived social mobility beyond Gini measures.
- Specific policy warnings:
  - Poorly targeted subsidies (Egypt’s fuel subsidies) can drain budgets and predominantly benefit higher-income households.
  - Overly generous and poorly targeted pensions (Brazil) contributed to fiscal deficits and lower growth.
  - Leakages and corruption in in-kind or poorly administered transfers (India pre-DBT) can undermine redistribution goals.

*Source: wpiea2021111-print-pdf - References..............................................................................................................*

### References..............................................................................................................

### wpiea2021111-print-pdf - References..............................................................................................................

### Introduction: objectives and scope
- Purpose: take a holistic review of policies and actions that were effective in making growth inclusive, drawing case studies from different regions and development levels.
- Key questions addressed:
  - How have countries fared along different dimensions of inclusive growth?
  - What have been countries’ experiences with implementing reforms to improve inclusive growth?
- Case study selection: Nordic countries (Denmark, Finland, Norway, Sweden) as high-performing examples; select EMDEs—India, Brazil, Egypt—for varied regional and developmental contexts.
- Framing observation: access to basic services (health, education, infrastructure, finance) is correlated with per capita income (Cerra, forthcoming), but correlation is not determination—countries at every development level show varied performance across dimensions.

### The Nordic model of inclusive growth — overview and quantitative pointers
- Characteristic strengths:
  - High employment and productivity generate resources to support strong social services.
  - Flexibility to adapt to trade and technology developments.
- Key elements (as presented):
  - Cooperative labor markets: low wage dispersion (see Figure 2; wage dispersion measured as decile 9/decile 1, in percent).
  - Competitive markets and innovation: relatively high R&D spending and firm-level digitalization (Figure 3).
  - Strong social services and welfare underpinned by sound fiscal policy: government spending high relative to GDP; Finland and Denmark at around 55 percent of GDP (Figure 4).
  - Taxation: personal income taxes among the highest in the OECD; labor tax wedge contained (Figure 5); corporate income tax revenue modestly below OECD average.
  - Gender equity: high female labor participation supported by parental leave, subsidized childcare, scope for shorter working hours; gender wage gaps among the smallest in OECD (Figure 6).
  - Climate policy ambition: some of the most ambitious climate targets worldwide, with substantial investment in mitigation; current annual reduction rates below what is required to meet Nordic targets and additional investments needed for adaptation of coastal infrastructure (Figures 7 and 8).
- Noted quantitative items preserved:
  - Government spending in Finland and Denmark: around 55 percent of GDP.
  - Net zero / GHG reduction targets and dates are presented in Figure 7 (exact numeric targets and timelines shown in Figure 7 in the source).
  - Estimates of annual costs for adaptation presented in Figure 8 (values shown in source: Denmark 1.7, Finland 1.6, Norway 4.2, Sweden 4.4 — "in percent of GDP" as in source).

### Nordic country case studies — policy features and outcomes
- Denmark: "flexicurity" labor market model
  - Combines employer flexibility with security for workers via active labor market policies (ALMPs), high mobility, comprehensive income safety net (Figure 10).
  - High ALMP spending; unemployment insurance funds support laid-off workers for up to two years with high replacement rates for low-income groups (up to 90 percent of previous earnings).
  - Reforms boosting labor participation and reducing long-term unemployment: 2011 pension reform linking statutory retirement age to life expectancy; 2018 tax reform increasing deductions for pension contributions.
  - Challenges: youth inactivity rise since the crisis due to high skills needed; increasing skill shortages; cumbersome access to skilled foreign labor.
  - Well-being indicator: Denmark ranks among the highest on World Happiness Report (index values shown in Figure 9; index range in Figure 9 includes values such as 6.4–8.0 with FIN, DNK, NOR among top).
- Sweden: "Swedish model" three pillars
  - (i) Flexible labor market — coordinated wage formation, active labor market policy including employer-financed job-security councils, generous unemployment benefits conditioned on active job search or training (no statutory minimum wages).
  - (ii) Universal welfare system — public services and transfers designed as social rights covering the entire population; supports high employment among women and the highest employment rate in the EU (Figure 12: employment rates such as 77.1, 75.3, 75.0, 73.0 are shown for top countries).
  - (iii) Economic framework promoting openness and stability — Riksbank targets 2 percent inflation; fiscal policy contributes to prosperity and equitable distribution with large fiscal buffers.
  - Outcomes and challenges: steady real wage growth aligned with productivity (Figure 11); unemployment rates of foreign-born and low-skilled exceed natives (Figure 13); Sweden has a history of concentrated wealth, high regional inequality, and one of the fastest increases in inequality in recent years.
- Transferability notes:
  - Nordic model sustainability relies on social trust, high tax compliance, social norms favoring work despite social supports, and more ethnically/culturally homogeneous societies—limiting wholesale exportability.
  - Elements like flexicurity have been incorporated into EU guidance; European Council adopted common principles of flexicurity in 2008 and Employment Committee monitoring indicators in 2012.

### India: economic reforms for inclusion, 1990-2020 — main features and quantitative signals
- Broad characterization:
  - India experienced rapid growth and significant eradication of extreme poverty alongside rising inequality (Figure 14).
  - Growth driven by economic reforms, improved macroeconomic stability, and welfare schemes for the poor.
- Growth performance:
  - GDP has grown almost 5 fold since the 1990s; per capita income increased by 4 times over the same period (Figure 15; source WEO October 2020).
  - India growing at an average of above 7 percent in the last decade (as noted in Figure 14 caption).
- Structural reforms and policy actions:
  - 1990s liberalization dismantled 'license-raj', opened FDI in many sectors, liberalized trade policies.
  - Recent pro-poor agricultural marketing reforms announced by the NDA government expected to boost growth (referenced in text).
  - Recent policies: Goods and Services Tax (GST) and Insolvency and Bankruptcy Code (IBC) cited as providing stable environment for investors.
- Macroeconomic stability and debt profile:
  - Continuity of fiscal prudence and RBI monetary policy provided platform for sustained growth.
  - Public debt largely resident-held, denominated in domestic currency, relatively long maturity—consistent with debt sustainability in context.
  - Ratio of external debt to GDP relatively low (Figure 16; source Reserve Bank of India).
- Social outcomes and caveats:
  - Rapid growth central to poverty reduction story (references to Bhalla, 2003; Ahluwalia M. S., 2019).
  - Despite poverty reduction, income inequality appears to have increased, though recent initiatives in financial inclusion and gender inclusion have helped decrease inequality in some ways (Figure 14).

### Cross-cutting observations and policy implications from case studies
- Common policy levers associated with inclusive growth in high-performing examples:
  - High employment maintained via flexible labor markets combined with strong active labor market policies and social safety nets.
  - Substantial public investment in education and health underpin human capital formation.
  - Sound fiscal policy and moderate public debt provide fiscal space to sustain social services and cushion shocks.
  - Broad tax bases and third-party reporting reduce avoidance/evasion and support high public revenues for services.
  - Policies supporting female labor participation (parental leave, subsidized childcare) correlate with higher female employment and narrower gender wage gaps.
  - Ambitious climate targets require alignment of mitigation and adaptation investment planning to avoid undermining inclusivity goals.
- Implementation caveats:
  - High spending on ALMPs does not automatically translate into higher employment for the low-skilled (Denmark example).
  - Labor market institutions that deliver high de-facto minimum wages may impede wage adjustment for lower-skilled workers, affecting migrant and low-skilled employment (Sweden example).
  - Cultural and social preconditions (social trust, norms, homogeneity) matter for the feasibility and sustainability of redistributive and high-tax models.
  - EMDEs face constraints (poor infrastructure, weak governance, large rural populations) that limit direct replication but allow selective adaptation of Nordic features.

*Source: wpiea2021111-print-pdf - References..............................................................................................................*

### introduction

### wpiea2021111-print-pdf - introduction

### Monetary policy and inflation targeting
- Adoption of inflation targeting in 2016 by the Reserve Bank of India (RBI) helped to reduce fiscal dominance in the economy and the influence of inflation in reducing real incomes of India’s poor.

### Redistribution through welfare policies
- India has a very thin benefit system; welfare benefits focus on income support to the poorest and comprise mainly food price subsidies and subsidies for heating oil and fuel.
- Prior administration (2004-2014) focused on food subsidies and cash transfers but experienced large leakages in the system (due to corruption), including food wastages.
- The Mahatma Gandhi Rural Employment Guarantee Scheme (MGNREGS), started in 2005, was one of the world’s largest employment guarantee schemes and provided direct cash to the poor.
  - MGNREGS accounted for an average of 2.3 percent of GDP in 2008 (Ahmad, 2013).
- Since 2014, digitization and the Direct Benefits Transfer (DBT) system were used to reduce leakages and improve efficiency.
- Additional schemes introduced since 2014 aimed to reduce leakages through digitization and improve sanitation and health care among the poor.
- The Swachh Bharat initiative aimed at universal sanitation coverage for all Indians and improved sanitation coverage from less than 50 percent in 2014 to almost 100 percent in 2019.

### Inclusive growth in India and inequality trends
- Inequality in India has been increasing in recent years, driven largely by urban inequality (Balasubramanian, Kumar, & Loungani, 2021).
- The net Gini coefficient for consumption has been gradually increasing over the last few decades; compared to China and Indonesia, the increase in inequality is not as large.
- Caveat: the Gini has shortcomings; all countries have consumption survey data so the comparison is relevant.

### Growth Incidence Curves (GIC) and consumption growth by decile
- The GIC measures growth rates in incomes for percentiles of the income distribution; this study uses mean income in the quantile group as in Lakner & Milanovic (2016).
- For every decile of the population and subpopulation (rural, urban) annual consumption growth rates are computed in 2011 PPP dollars.
- Interpretation: an upward sloping GIC indicates higher growth among relatively richer groups (more unequal); a flat GIC indicates equally shared growth across quantiles.
- Observed growth rates (1983-2011):
  - National aggregate: 1st decile (bottom 10 percent) grew by 1.7 percent; 10th decile (top 10 percent) grew by 2.38 percent.
  - Rural areas: 1st decile grew by 1.75 percent; 10th decile grew by 1.95 percent.
- Much of the inequality appears to be in urban areas (additional urban decile specifics referenced in the source figures).

*Source: wpiea2021111-print-pdf - introduction*

### 1.25 percent (lesser than the rural bottom 10 percent1

### wpiea2021111-print-pdf - 1.25 percent (lesser than the rural bottom 10 percent1

### Urban versus rural inequality (India)
- Growth incidence: 1.25 percent (lesser than the rural bottom 10 percent 1st decile) for lower urban deciles and 2.5 percent growth for the 10th decile (top 10 percent), corroborating that much of the Indian inequality story is driven by urban inequality.
- Note on GIC: the Growth Incidence Curve (GIC) used is anonymous and does not account for movement of individuals between deciles over time.
- Decile definition: 1st decile represents the 10th percentile; 10th decile represents the 100th percentile of the consumption distribution.

### Poverty reduction and drivers (India)
- Despite progress, approximately 270 million people are still considered to be poor.
- Historical change in poverty (1993-2012): population in poverty fell from 403.7 million (45.3 percent) to 269.8 million (21.9 percent) over two decades.
- Drivers of poverty reduction: rapid economic growth, improvements in education and health indicators for the poor, and redistributive welfare policies.

### Direct Benefit Transfers (DBT) — evolution, impact, and scenarios (India)
- DBT timeline and aims:
  - DBT formally announced as a flagship initiative in 2013.
  - JAM trinity: Jan Dhan, Aadhar, and Mobile integrated with Pradhan Mantri Jan Dhan Yogana to improve targeting, de-duplication, and fraud reduction.
  - PMJY created more than 410 million bank accounts for poor Indians.
- DBT transfer amounts:
  - almost 1,034 million USD in 2013/14;
  - almost 33,660 million USD in 2018 (approximately 1.3 percent of India’s GDP);
  - approximately further 27,757 million USD till early-2021.
- Trend and impact:
  - More than 50 percent increase in transfers since data first shared in 2013.
  - Efficiency gains via JAM reduced fake accounts and middlemen, improving outcomes.
- Plausible scenarios for inequality impact:
  - If efficiency gains are fully reinvested into DBT, could result in strong income growth for the poor and reduce inequality between lower and top deciles.
  - If efficiency gains are used elsewhere, reduction in inequality could be lower.
  - Continued expansion of DBT over the next 5-10 years could substantially grow incomes for the 10th and 20th decile levels, further reducing inequality.
- DBT system challenges:
  - Need for greater penetration of the JAM trinity among the remaining population.
  - Need for more tracing and elimination of fake recipients.
  - Infrastructure improvements to sustain larger-scale transfers.
  - Data privacy concerns and access to micro-data for researchers.

### India: policy takeaway
- Indian inclusive growth model combines rapid growth, macroeconomic stability, and targeted welfare schemes as complementary channels to promote inclusive growth.

---

### Growth dynamics and constraints (Brazil)
- Growth performance:
  - Since 2000, Brazil grew on average slower than EMDEs and emerging Asian economies.
  - Growth accelerated in the 1990s–2000s but a deep recession occurred in 2015-2016 due to macroeconomic imbalances, loss of confidence, lower commodity prices, and tight financing.
- Binding constraints identified:
  - Low domestic savings and high cost of finance (Hausmann et al. (2005); Arnold (2011)).
  - Gross national saving and total investment averaged 18-19 percent of GDP in the 2010s and declined by 1-2 percent of GDP in the 2010s.
  - High real interest rates and loan-deposit spreads, accumulated external debt, and external borrowing limits.
- Fiscal and pension challenges:
  - Accumulated fiscal imbalances contributed to the 2015-16 recession.
  - Public pension spending about 14 percent of GDP in 2018.
  - Pension system features: low retirement age (54 vs 64 years in the OECD), generous benefits relative to earnings (70 vs 53 percent in the OECD), special regimes for civil servants and armed forces.
  - Pension reform (approved October 2019) expected to reduce spending by 11 percent of GDP over ten years relative to the counterfactual without reform.
- Policy response 2016-2019:
  - Fiscal rule imposing a ceiling on current expenditure.
  - Landmark pension law aimed at improving domestic savings and addressing growth constraints.

### Inclusive policies and outcomes (Brazil)
- Poverty and informality:
  - Between 2000-2014, poverty rate declined from 9.9 to 2.4 percent; it increased somewhat during the 2015-2016 recession.
  - Informality declined from 34 to 28 percent of adults between 2005 and 2015.
- Role of commodity boom (2000-2014):
  - Boosted demand for low-skilled labor and provided fiscal resources, reducing poverty and informality.
  - Labor-intensive domestic mineral mines increased employment; capital-intensive oil and gas reduced poverty via fiscal channels.
- Bolsa Familia Program (BFP):
  - Launched in 2003.
  - In 2015, BFP constituted 0.44 percent of GDP or one-third of annual spending on the social safety net (almost two-thirds belonged to social pensions).
  - Conditional cash transfers (CCTs) support human capital: school attendance, vaccination, pre-natal visits.
  - About 60 percent of the poorest quintile receive CCTs; about 80 percent of CCTs go to the two poorest quintiles.
  - In 2018, more than 20 percent of the population was enrolled in BFP.
  - 90 percent of direct recipients are women.
- Labor market and gender:
  - Female labor force participation rose from 42% in 1990 to about 55% in 2004 and stabilized thereafter.
  - Women’s wages: 53 percent of men’s wages in 1995; 70 percent in 2014.
  - WEF Global Gender Gap Index: gender gap declined from 35 percent to 31 percent between 2006-2014.
- Inequality metrics:
  - Gini coefficient declined from 58.4 to 51.9 between 2000-2014 (survey-based).
  - Tax-data evidence: top 10 percent of earners received around 55 percent of total income between 2001-2018 (stable).
- Policy implications:
  - Need to improve access to education and close the quality gap between private and public schools to reduce inequality.
  - Address long-term constraints: increase domestic savings, fiscal sustainability, and pension reform to support growth.

---

### Egypt: growth, perceptions, measurement, and policy
- Growth context:
  - Egypt averaged economic growth of about 4 percent over the past two decades, mainly driven by capital deepening.
  - GDP per capita 2010-2019 shows a wide gap between Egypt and Middle East (MEs) and EMDEs.
- Inequality measures versus perceptions:
  - Official Gini index: ranged from a high of 32.8 in 1999 to a low of about 31.5 in 2017 — relatively egalitarian by developing-country standards.
  - Perceptions: World Values Survey (WVS) shows rising preference for equality:
    - Group in favor of income equality comprised more than 35 percent of respondents in 2012 (up from 2.6 percent in 2001).
    - Group tolerant of inequality fell to 10 percent of respondents in 2012 (down from 32.8 percent in 2001).
  - The “MENA inequality puzzle”: perceptions of high inequality contrast with stable and low measured Gini.
- Measurement challenges and literature findings:
  - Household income/expenditure surveys may underestimate inequality by missing top incomes.
  - Hlasny and Verme (2014): household income survey data do not appear to suffer systematic top-income under-reporting in Egypt.
  - Van der Weide, Lakner, and Ianchovichina (2016): using house prices, urban Gini revised from 0.36 to 0.47 — suggesting considerable underestimation.
  - Johannesen (2015): evidence of high wealth inequality using BIS cross-border bank deposits, but findings do not support a link between haven deposits and expenditure inequality.
  - Inequality of opportunity (Assaad et al. (2018)): mixed trends; middle-class wealth collapsed toward lower-class levels while the top remained apart, contributing to middle-class discontent.
  - Education inequality: probability of a boy from a poor family enrolling in university estimated at 9 percent compared to 97 percent for a boy from a most advantaged family; TIMSS scores indicate considerable educational inequality.
- Explaining perceptions:
  - Perceptions influenced by regional comparisons (e.g., GCC countries), economic shocks (GFC 2008, 2011 uprisings), and perceived lack of upward mobility.
  - People judge inequality by gaps between actual and expected incomes, not only by observed distribution.
- Policy response:
  - By 2016, large macroeconomic imbalances (budget deficits, loose monetary policy, fixed exchange rate) had led to reduced reserves, high inflation, and high public debt with rising unemployment, especially among women and youth.
  - Egypt engaged in a home-grown economic reform program, supported by the IMF under an Extended Fund Facility (EFF) concluded in late 2019, with reforms including targeted cash transfers, reducing energy subsidies, and policies to increase female labor participation.

*Source: wpiea2021111-print-pdf*

### 2016. The program achieved its key objective of macroeconomic stability, which is a

### wpiea2021111-print-pdf - 2016. The program achieved its key objective of macroeconomic stability, which is a

### Macroeconomic stability and reform sequencing
- The program achieved its key objective of macroeconomic stability, presented as a precondition to attract investment, raise growth, and create jobs.
- Macroeconomic stability is framed as setting the stage for broader reforms, including improving the business climate and fostering inclusive growth.

### Fuel subsidy reforms and fiscal reallocation
- Extensive fuel subsidies were identified as a significant drain on the budget that benefited the rich by making fuel in Egypt one of the cheapest in the world and encouraging excessive consumption.
- Phasing out fuel subsidies created more room in the budget for:
  - better-targeted social spending;
  - more investment in health, education, and public infrastructure.

### Social spending: Takaful and Karama cash transfer programs
- Authorities implemented a modern social spending system with a couple of cash transfer programs targeted to those most in need.
- Program descriptions:
  - "Takaful" (Solidarity): a conditional cash transfer program (conditional on school attendance among other criteria) aimed at supporting vulnerable families’ consumption, reducing poverty, encouraging school attendance, and providing needed health care; main goal is to build human capital for the next generation.
  - "Karama" (Dignity): an unconditional cash transfer program aiming at supporting poor elderly citizens.
- Coverage and impact:
  - These cash transfer programs have enrolled about 2.25 million families.
  - IFPRI evaluation (late 2018 survey) findings:
    - about 89 percent of the sample are either very satisfied or somewhat satisfied.
    - about 93 percent of transfer recipients reported no difficulties in receiving this support.
    - These programs helped households to increase their consumption by about 8.4 percent, compared to people who did not receive the transfers.
- Role in reform strategy:
  - These programs were considered the most cost-effective way to ensure that the poor did not bear the costs of economic adjustments.
  - Social policy centered around Takaful and Karama was critical to ensuring public support for broader reforms and to laying the foundation for higher and more inclusive growth.

### Policies for female and youth employment
- Policies implemented to foster job creation for women and youth include:
  - Allocating more public expenditure to improve the availability of public nurseries and other facilities to enhance women’s ability to seek jobs (implemented in 2017).
  - Establishing a joint Ministerial committee with representatives from the Women's council, academia, and business community to improve women’s participation rate in the labor force and to work with UN Women to introduce gender budgeting.
  - Simplifying rules and facilitating registration of home-based nurseries to expand job opportunities for women and child-care for working mothers.
  - Programs launched:
    - Forsa: launched in early 2018 to help create job opportunities.
    - Mastoura: a microcredit program directed to women, which covered more than 6000 projects in its first phase of inception in 2017.
- Outcome:
  - Female labor participation increased only slightly from 21.8 percent in 2017 to 22.1 percent in 2020.

### Structural reforms to enable private-sector-led growth
- Reforms undertaken to revamp the growth model and allow more room for private sector-led job creation include measures in:
  - competition policy;
  - public procurement system;
  - management and transparency of State-Owned Enterprises;
  - industrial land allocation;
  - management of public finances.
- These reforms are presented as having the potential to significantly improve the investment climate and boost job creation to absorb a large and growing young population.

### Broader lessons on inclusive growth (Lessons and Conclusions)
- Achieving inclusive growth requires a multipronged approach addressing several facets of the economy and society, including labor market policies, business regulation, trade, migration, capital flows, tax policy, and public spending.
- Programs need to target different disadvantaged groups, especially the extreme poor, who are often women or youth.
- The Nordic model illustrates best practices:
  - Government ensures macroeconomic stability, fosters competition and innovation, and promotes international integration.
  - Social partners cooperate to reduce wage inequality while preserving labor market flexibility and social cohesion.
  - Combining broad safety nets with retraining and active labor policies helps people adjust to changing economic conditions.
- Efficacy of measures depends on interaction with other policies and country conditions (example: Sweden’s reliance on collective bargaining rather than a statutory minimum wage).
- Growth remains central for reducing poverty (examples: India and Brazil), but growth alone is insufficient; well-designed public programs are vital.
  - Brazil’s Bolsa Familia coupled income support with conditionality and achieved larger poverty reduction than Chile despite lower per capita growth during 2000-2015.
  - Conditional and unconditional cash transfers were successful in Brazil and Egypt; direct benefit transfers in India were important.
- Poorly designed or poorly targeted policies can impede inclusion:
  - Overly generous and poorly targeted pensions in Brazil contributed to fiscal deficits and lower growth.
  - India’s social assistance prior to direct benefit transfers suffered from leakages and corruption.
  - Egypt’s energy subsidies mainly benefited higher-income households and drained public finances.
  - Even well-managed systems (Denmark, Sweden) need improvements for low-skilled and foreign-born workers.
- Technology enhances policy implementation:
  - India’s use of digital IDs enabled expansion and more efficient administration of public transfers, reduced corruption, and expanded financial inclusion through millions of bank accounts.
- Data and perceptions matter:
  - Statistics on distribution are important for measuring inclusiveness and designing policy responses.
  - Egypt’s official data on inequality may not reflect public perception; more work is needed to address data gaps related to misreported income and wealth.
  - Public tolerance for inequality may depend on perceived social mobility over time and generations, beyond measures like the Gini coefficient.

*Source: Excerpt from wpiea2021111-print-pdf.*

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_Source: https://www.imf.org/-/media/files/publications/wp/2021/english/wpiea2021111-print-pdf.pdf_