## IMF Survey : All Will Benefit from Steps to Cut Excessive Inequality—Lagarde

_IMF News, June 17, 2015_

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## Bibliographic details
- Published: June 17, 2015

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### Inequality and growth: key findings
- “If you lift the income share of the poor and middle class by 1 percentage point, then GDP growth increases by as much as 0.38 percentage points in a country over five years.”
- “By contrast, if you lift the income share of the rich by 1 percentage point, then GDP growth decreases by 0.08 percentage points.”
- “Our findings suggest that—contrary to conventional wisdom—the benefits of higher income are trickling up, not down.”
- Earlier IMF research shows that excessive income inequality “drags down the economic growth rate and makes growth less sustainable over time.”
- Divergence noted between a steady, decades-long fall in inequality between countries (driven by rapidly rising average incomes in emerging market economies) and growing income inequality within countries.

### Causes and consequences highlighted
- Main drivers of the widening earnings gap between higher- and lower-skilled individuals, especially in advanced economies:
  - technological progress;
  - financial globalization.
- Other contributing factors:
  - overreliance on credit finance;
  - low social mobility;
  - inequality of access to education, health care, and financial services, especially in developing economies.
- Consequence: “With these kinds of disadvantages—with this kind of inequality of opportunity—millions of people have little or no chance of earning higher incomes and building up wealth.”

### Policy recipes for stronger, more inclusive growth
- Macroeconomic stability: “Sound macroeconomic policies are the poor’s best friend,” supported by good governance, since corruption can be a strong indicator of profound social and economic inequality.
- Prudent policies that balance promoting greater equality and preserving incentives to compete, innovate, and invest.
- Fiscal adjustments, including:
  - clamping down on tax evasion;
  - removing unfair tax relief;
  - reducing high labor taxes;
  - relying more on conditional cash transfers;
  - freeing up resources by reducing energy subsidies.
- Smart structural reforms in:
  - education;
  - health care;
  - labor markets;
  - infrastructure;
  - financial inclusion.
- Timing opportunity: later this year policymakers have a “once-in-a-generation opportunity for development” with the United Nations Sustainable Development Goals summit in September and a summit in December to seek a deal to cut carbon emissions.

### IMF role and actions
- The IMF’s mandate: promote global economic and financial stability; support development by helping its 188 member countries design and implement policies and by lending to countries in times of distress.
- Example: in sub-Saharan Africa many countries have applied sound macroeconomic policies over the past decade and are reaping benefits in the form of stronger growth and higher living standards.
- IMF support instruments and focus:
  - new instruments such as zero-interest loans;
  - increased financing and capacity building;
  - stepping up research on inequality, gender, and climate-related issues;
  - looking into increasing access to its loans for developing countries to help them buffer external shocks;
  - aiming to increase focus on helping the poorest and most fragile countries.

*Source: IMF Survey, June 17, 2015.*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [In The News](https://www.imf.org/en/news/search)
- [Read the speech](http://www.imf.org/external/np/speeches/2015/061715.htm)
- [Rise of inequality](http://www.imf.org/external/pubs/ft/survey/so/2012/int061412a.htm)
- [Blog: Inequality as hazard](http://blog-imfdirect.imf.org/2011/04/08/inequality-and-growth/)
- [Widening rich-poor gap](http://www.imf.org/external/pubs/ft/survey/so/2011/new091211a.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sonew061715a_