Chart of the Week: Growth and Inequality

IMF Blog, February 13, 2017

Source details

Publication: iMFdirect
Date: February 13, 2017
Core observation: In the past two decades, low-income economies have seen a rise in growth, with fewer living in poverty. Yet inequality in many countries has remained virtually unchanged.
Purpose: Summarize findings from a recent IMF paper on how policy design can help spread the economic benefits of growth more broadly.

Economic growth in low-income economies has increased over the past two decades.
The increase in growth coincided with fewer people living in poverty.
Despite these gains, inequality in many countries has remained virtually unchanged.
Long-term reforms can produce infrastructure and productive assets described as "bridges, banks, firms and fields of grain," but these reforms take time and may not immediately help the poorest.

Long run:
- Pursue structural reforms that generate sustainable growth and build assets (e.g., infrastructure, financial institutions, firms, agricultural productivity).
Short run (to complement reforms and assist the poorest):
- Use targeted cash transfers to farmers who suddenly lose a grain subsidy.
- Implement a more progressive tax system to distribute burdens more fairly.
- Expand access to banking services to improve financial inclusion.
Rationale: Because reforms take time and the poorest cannot always wait for transformation, governments need redistribution and targeted measures to ensure that growth benefits are shared.

Ensure reforms are "tweaked or completed by measures to ensure a win-win for all in low-income economies."

Source: Chart of the Week: Growth and Inequality — iMFdirect, February 13, 2017.