## Reduce Inequality To Create Opportunity

_IMF Blog, January 7, 2020_

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**Canonical URL:** [Reduce Inequality To Create Opportunity](https://www.imf.org/en/blogs/articles/2020/01/07/blog-reduce-inequality-to-create-opportunity)

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## Bibliographic details
- Authors: Kristalina Georgieva
- Published: January 7, 2020

---

### Overview
- Over the past decade, inequality has become one of the most complex and vexing challenges in the global economy: inequality of opportunity, inequality across generations, inequality between women and men, and inequality of income and wealth.
- The good news is we have tools to address these issues, provided we have the will to do so.
- Despite the political difficulty of implementing reforms the payoffs for growth and productivity are worth the effort.

### Policies to tackle inequality
- Fiscal policies and progressive taxation:
  - Progressive taxation is a key component of effective fiscal policy.
  - At the top of the income distribution, our research shows that marginal tax rates can be raised without sacrificing economic growth.
  - Utilizing digital tools in tax collection can boost domestic revenue.
  - Reducing corruption can both improve collection and increase trust in government.
  - These strategies can secure the necessary resources to invest in expanding opportunities for communities and individuals that have been falling behind.
- Gender budgeting:
  - Gender budgeting is a fiscal tool to structure spending and taxation to advance gender equality.
  - It can increase women’s participation in the work force and, in turn, boost growth and stability.
- Social spending policies:
  - When done right they can mitigate income inequality and its detrimental effects on inequality of opportunity and social cohesion.
  - Education prepares young people to become productive adults.
  - Health care saves lives and can improve the quality of life.
  - Pension programs can allow the elderly to preserve their dignity in old age.

### Social spending scale estimates
- A new IMF study shows that the required scaling-up of social spending varies widely across countries.
- Estimated additional annual spending required in key areas such as health, education, and priority infrastructure:
  - Emerging market economies: about 4 percentage points of GDP in 2030.
  - Average low-income developing country: 15 percentage points of GDP.

### Structural reforms and labor policies
- Reforms to the structure of the economy can reduce adjustment costs, minimize regional disparities, and prepare workers for green jobs.
- Active labor market policies:
  - Job search assistance, training programs, and in some instances, wage insurance can augment workers’ skills and reduce unemployment spells.
- Facilitating worker mobility:
  - Mobility across firms, industries, and regions minimizes adjustment costs and promotes rapid re-employment.
  - Housing, credit, and infrastructure policies can support worker mobility.
- Geographically-targeted policies and investments can complement existing social transfers.

### How the IMF supports countries to reduce inequality
- The IMF’s efforts to tackle inequality are embedded in surveillance, lending, research, and capacity development work.
- A cornerstone of the IMF approach is the social spending strategy.
- Guiding principles for social spending engagement:
  - Social spending needs to be adequate, yet also efficient and sustainably financed.
  - If social spending is inadequate to achieve the SDGs or to protect a significant share of poor and vulnerable households, then it needs to be increased.
  - Changing demographics will push issues of fiscal sustainability to the forefront, including health and pension spending.
  - Mitigating the adverse effects of adjustment on the poor and vulnerable is an important objective.

### Implementation in practice (recent examples)
- Egypt: During the implementation of the IMF-supported program, Egypt more than doubled its coverage of cash transfers, reaching 2.3 million households.
- Ghana: IMF engagement helped create room in the budget to increase spending on public education to achieve the goal of universal secondary education.
- Japan: The IMF advised Japan on developing options for pension reform, necessary for its aging society.
- The IMF is weaving its social spending strategy into the fabric of its work to tailor engagement to country-specific preferences and circumstances.

### Collaboration with partners
- Effective engagement requires partnerships among international organizations, academics, country authorities, civil society, and the private sector.
- Examples of collaboration:
  - Engagement with G7 Labor Ministers on social, employment, and labor issues to inform policy advice.
  - International organizations like the World Bank and International Labor Organization provide invaluable knowledge on social spending.
  - Civil society, academics, think tanks, and labor unions offer perspectives that enrich views and help avoid groupthink.
- There is no one-size-fits-all approach; countries have different preferences, challenges, and aspirations, and working together increases the likelihood of asking the right questions and finding the right answers.

*Kristalina Georgieva — January 7, 2020*

---


## References

- [عربي,](https://www.imf.org/ar/News/Articles/2020/01/07/blog-reduce-inequality-to-create-opportunity)
- [日本語](https://www.imf.org/ja/News/Articles/2020/01/07/blog-reduce-inequality-to-create-opportunity)
- [Português](http://www.imf.org/pt/News/Articles/2020/01/07/blog-reduce-inequality-to-create-opportunity?sc_mode=1)
- [Inequality of opportunity](https://blogs.imf.org/2019/11/07/the-threat-of-inequality-of-opportunity/)
- [Inequality across generations](https://blogs.imf.org/2018/01/24/a-dream-deferred-inequality-and-poverty-across-generations-in-europe/)
- [women](https://www.imf.org/external/themes/gender/)
- [wealth](https://blogs.imf.org/2017/12/07/chart-of-the-week-sharing-the-wealth-inequality-and-who-owns-what/)
- [progressive taxation.](https://blogs.imf.org/2017/10/11/inequality-fiscal-policy-can-make-the-difference/)
- [corruption](https://blogs.imf.org/2019/04/04/tackling-corruption-in-government/)
- [Gender budgeting](https://blogs.imf.org/2019/03/06/do-the-math-include-women-in-government-budgets/)
- [IMF study](https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2019/01/18/Fiscal-Policy-and-Development-Human-Social-and-Physical-Investments-for-the-SDGs-46444)
- [social spending strategy](https://www.imf.org/en/Publications/Policy-Papers/Issues/2019/06/10/A-Strategy-for-IMF-Engagement-on-Social-Spending-46975)

_Source: https://www.imf.org/en/blogs/articles/2020/01/07/blog-reduce-inequality-to-create-opportunity_