Response to Article: “The IMF is Showing Some Hypocrisy on Inequality”
IMF Blog, February 16, 2017
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- Published: February 16, 2017
Research findings on inequality and inclusive growth
- Reducing inequality can help to support durable growth, while well-designed redistributive policies do not hamper but can even support growth if appropriately designed.
- Increasing the income share of the poorest can boost growth, but raising the income share of the richest can actually harm growth.
- Annual economic growth in sub-Saharan African countries could be 1 percentage point higher if inequality was reduced to levels observed in ASEAN countries.
- Boosting the proportion of women in the formal labor market not only boosts growth, but also reduces income inequality and supports economic diversification.
Operational measures and program-level practice
- The IMF has introduced floors for social spending on priorities such as health care and education.
- The Independent Evaluation Office of the IMF found that 29 of 30 recent programs incorporated these social spending floors.
- A 2013 study found that over a ten-year period (2003-2012) real health spending per person grew by an average of 6.5 percent in low-income countries where the IMF has a program, versus 4.5 percent in countries without IMF programs.
- Fiscal technical assistance has focused on the distributive aspects of policies, including policy advice on energy subsidy reform that normally includes an assessment of distributional effects and mitigating measures to protect the poor.
Article IV pilots to mainstream inclusion in surveillance
- In 2015 the IMF initiated pilot cases to operationalize income inequality, financial inclusion, gender and climate change in Article IV surveillance.
- First wave of inequality pilots (10 countries): Bolivia, Colombia, Denmark, Ethiopia, Israel, Korea, Kyrgyz Republic, Malawi, Mauritania, Republic of Congo.
- First wave of gender pilots (13 countries): Chile, Costa Rica, Guatemala, Germany, Hungary, India, Italy, Jordan, Mali, Mauritius, Nigeria, Pakistan, Sweden.
- Country-specific analytical highlights and recommendations:
- Ethiopia: reviewed evolution of inequality and quantified distributional impact of growth-enhancing policy measures; recommendations included making income tax thresholds more progressive, promoting financial instruments targeted to rural savers, and revamping indirect subsidies to better target low-income households.
- Bolivia: examined large declines in inequality and poverty and considered how to make further progress amid declining commodity prices; emphasized ensuring social transfers were well-designed and targeted, alongside a focus on the quality of education and healthcare.
- United States: the IMF has looked at income polarization, highlighting effects such as lessened social mobility and increased economic insecurity.
- India: examined the large gap in labor participation rates of men and women; recommended investing more in transport that promotes women’s safety and mobility to ease transition to formal employment.
- Germany: where female labor participation rates are relatively high but average working hours are relatively low, highlighted the need for high-quality and affordable childcare and steps to move towards a system of individual taxation that does not penalize secondary earners (mostly women).
- Japan and Korea: advice includes higher wages for women and non-regular workers and measures to reduce labor market duality.
Second wave of pilots (2016/17) — scope and country lists
- 15 on inequality: China, Bolivia, Brazil, Guatemala, Honduras, Korea, Lithuania, Mongolia, Myanmar, Poland, Republic of Congo, Singapore, Togo, USA, Zambia.
- 9 on gender: Austria, Canada, Guatemala, India, Japan, Morocco, Niger, Poland, Rwanda.
- 15 on climate change/energy: Cambodia, China, Dominican Republic, Euro Area, Jamaica, Jordan, Myanmar, Saudi Arabia, Seychelles, Sri Lanka, St. Lucia, UAE, Ukraine, Vietnam, Zimbabwe.
Conclusion and institutional stance
- The IMF asserts that by combining research with program design (social spending floors, targeted fiscal advice, and country pilots) and by scaling pilots in a second wave, it is “walking-the-talk” on the issue of inequality.
IMF blog post — February 16, 2017