5 Things You Need to Know About Inequality

IMF Blog, January 23, 2018

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Publication date: January 23, 2018
Headline finding: Global income inequality has declined in recent years.
Exact measure cited: The Gini index dropped from 68 in 1988 to 62 in 2013.
Context: The decline reflects relatively strong growth in many emerging and developing economies, particularly in China and India, while inequality has increased within many countries, including in many advanced economies.

Historical focus: The IMF has studied the economic impact of inequality since the late 1980s, tracking how some growth-oriented policies affected poverty and inequality.
2015 commitment: The IMF pledged to further its analysis on inequality issues and to use this work in the development of its policy advice, as part of supporting the 2030 United Nations Sustainable Development Goals and helping countries achieve strong, sustainable, and inclusive economic growth.
Pilot studies:
- Two waves of pilot studies conducted in 27 countries.
- A third wave covering a further 16 countries is currently underway.

Calibrating Fiscal Policies
- Fiscal policies are identified as the government’s primary mechanism for redistributing income across populations.
- Recent country work focused on Costa Rica, Guatemala, Honduras, and Togo.
- The 2017 Fiscal Monitor focuses on how governments can use tax and transfer policies, as well as education and health policies, to address inequality concerns.

Protecting Social Spending and Increasing its Effectiveness
- Reallocating resources from ineffective spending (e.g., fossil fuel subsidies) to effective social spending (e.g., cash transfers) can strengthen social assistance and counteract negative impacts of reforms.
- Brazil: An IMF study documented the positive contribution of the Bolsa Família program to the decline in inequality.
- Pakistan: IMF policy recommendations included increasing safety-net spending and consolidating smaller, less efficient safety net programs into the Benazir Income Support Program.
- Since 2010, minimum social spending levels have been included in virtually all low-income country programs.

Balancing Labor Market Policies
- IMF work identifies how differences across worker groups contribute to income inequalities: formal vs. informal workers in Colombia; ethnic and religious communities in Israel; regional differences in Brazil and Slovakia; and disparities among workers in the United States.
- Poland: IMF staff advocated policies supporting structural transformation in less developed eastern regions to reduce regional disparities and promote inclusive growth.
- A 2015 study focused on the relationship between labor market institutions and the distribution of incomes in advanced economies.

Managing Commodity Boom and Bust Cycles
- Lower commodity prices can reverse reductions in inequality and poverty achieved during commodity booms.
- Bolivia: IMF staff developed a model to analyze drivers behind reductions in inequality and poverty and to determine policies to retain gains while conducting needed fiscal consolidation.

Promoting Financial Inclusion
- Limited access to financial services in rural areas compounded inequality in Ethiopia and Myanmar following financial sector reforms.
- An IMF study examined how complementary policies can offset unfavorable consequences for inequality from pro-growth reforms in low-income developing countries.

IMF staff engage with governments and other partners, including civil society organizations and labor unions.
Recent inequality pilots in Brazil, Korea, and Kosovo included discussions with national International Trade Union Confederation-affiliated labor unions.
Further engagement is planned for selected inequality pilot projects and for some gender and climate pilot projects.

Source: 5 Things You Need to Know About Inequality, The Editors, January 23, 2018.

Fiscal Policy and Income Inequality; IMF Policy Paper; January 23, 2014
- Fiscal Policy and Income Inequality; IMF Policy Paper; January 23, 2014 (Markdown version)
- Fiscal Policy and Income Inequality; IMF Policy Paper; January 23, 2014 (PDF)
Country Report
- Country Report (Markdown version)
- Country Report (PDF)
Country Report
- Country Report (Markdown version)
- Country Report (PDF)
Staff Discussion Note
- Staff Discussion Note (Markdown version)
- Staff Discussion Note (PDF)
Staff Discussion Note
- Staff Discussion Note (Markdown version)
- Staff Discussion Note (PDF)