Chart of the Week: Sharing the Fruits of Growth
IMF Blog, April 24, 2017
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Bibliographic details
- Authors: The Editors
- Published: April 24, 2017
Context and purpose
- Published: April 24, 2017
- Event context: Spring Meetings of the IMF and World Bank, where economists and policymakers discussed sustaining global economic expansion and ensuring that the fruits of growth are shared more widely within countries.
- Focus: The role of fiscal policy—government’s ability to tax and spend—in making growth more inclusive.
- Empirical anchor: The chart shows the redistribution effect of fiscal policy before and after taxes, as measured by the change in the Gini coefficient. A Gini of zero expresses perfect equality, while a Gini of one expresses maximum inequality.
Key findings illustrated
- The effectiveness of fiscal policy in mitigating inequality varies widely by country, as shown by differences in the pre- and post-tax Gini changes in the Chart of the Week.
- Fiscal policy can alter income distribution through taxes, transfers, and public spending choices.
Policy recommendations and country examples
- Improved design of transfers to households
- Advanced economies: Use targeted tax credits available only to those who are employed to both support low-income families and encourage work.
- United States example: Expand the Earned Income Tax Credit and raise the minimum wage to promote employment for low-income working people.
- Emerging market and developing countries: Expand transfers to the poor that are conditional on attendance of children at health clinics and schools.
- Examples: Jamaica and Pakistan.
- More progressive tax systems
- Advanced countries: Make tax systems more progressive by reducing exemptions that favor the affluent.
- Example: Mortgage-interest tax credit cited for the United States and Sweden.
- Emerging market and developing economies: Expand the coverage of the personal income tax by reducing exemptions and bringing more firms and individuals into the formal sector to increase fiscal revenues and equity.
- Public education and training
- Governments should help workers acquire and maintain skills for the evolving global economy.
- United Kingdom example: Further expand vocational training and apprenticeship programs to improve employment prospects for youth.
Further reading
- Chapter one of the IMF’s 2017 Fiscal Monitor is suggested for more detail.
Source: Chart of the Week: Sharing the Fruits of Growth (April 24, 2017).