Causes and Consequences of Income Inequality: A Global Perspective

By Era Dabla-Norris, Kalpana Kochhar, Nujin Suphaphiphat, Franto Ricka, Evridiki Tsounta

June 15, 2015

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Era Dabla-Norris, Kalpana Kochhar, Nujin Suphaphiphat, Franto Ricka, and Evridiki Tsounta. Causes and Consequences of Income Inequality: A Global Perspective, (USA: International Monetary Fund, 2015) accessed September 19, 2024

Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

Summary

This paper analyzes the extent of income inequality from a global perspective, its drivers, and what to do about it. The drivers of inequality vary widely amongst countries, with some common drivers being the skill premium associated with technical change and globalization, weakening protection for labor, and lack of financial inclusion in developing countries. We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down. This suggests that policies need to be country specific but should focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class. To tackle inequality, financial inclusion is imperative in emerging and developing countries while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive.

Subject: Education, Income distribution, Income inequality, Labor, National accounts, Personal income, Wages

Keywords: Cross-country analysis, Fiscal policy, Gini coefficient, Global, IMF staff calculation, Income distribution, Income distribution, Income inequality, Income inequality, Income share, Inequality, Personal income, Protection system, SDN, Wages

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Staff Discussion Notes No. 2015/013
Stock No:

SDNEA201513
ISBN:

9781513555188
ISSN:

2617-6750

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