## Cause, Cure for Inequality Lies in Policies

_IMF News, October 7, 2016_

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**Canonical URL:** [Cause, Cure for Inequality Lies in Policies](https://www.imf.org/en/news/articles/2016/10/07/am16nainequalityseminar100716)

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## Bibliographic details
- Published: October 7, 2016

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### Overview
- Publication date: October 7, 2016
- Context: Seminar on inequality, globalization and technology during the IMF-World Bank Annual Meetings in Washington, D.C.
- Core message: Inequality within countries is on the rise, and policymakers can combat its economic, social, and political impacts with a mixture of tax policy, income transfers, and education.

### Major findings on inequality
- "Inequality within countries is on the rise."
- "While inequality between countries has declined over the past 20 years, inequality within countries is on the rise."
- Globalization has "brought huge gains across countries, lifting millions out of poverty" but domestic policy choices explain "the big differences between countries."
- Stagnation of incomes combined with declining social mobility makes inequality "toxic."

### Causes and drivers highlighted
- Policy choices: "The big differences between countries has nothing to do with globalization, but with the use and misuse of domestic policy." — Tharman Shanmugaratnam, Deputy Prime Minister of Singapore and Minister for Economic and Social Policies.
- Technology and labor market change: technology has increased wages at the top and eroded middle-income jobs; "machines are replacing brawn, and replacing brains." — Laura Tyson, Haas School of Business, University of California, Berkeley.
- Political and social dynamics: lack of mobility fuels perceptions that globalization, trade, and immigration are sources of individual economic struggle.

### Policies to level the playing field (pre-distribution and redistribution)
- Pre-distribution policies emphasized:
  - Education
  - Access to health care
  - Financial inclusion
  - Early childhood programs (noted as "the most effective" and producing "the most significant impact on distribution, but also take the longest to mature") — Mauricio Cárdenas, Finance Minister of Colombia.
- Redistribution policies:
  - Taxes and programs that transfer benefits address inequality and "do not hurt growth."
  - IMF research: "there is little evidence that countries’ redistribution policies hinder growth, unless they were extreme."
  - IMF advises governments on trade-offs between efficiency and equity when choosing policy mixtures.

### Policy recommendations and implications
- Combine tax policy, income transfers, and education to combat inequality, recognizing implementation is "often difficult to achieve."
- Invest in lifelong training and skills so workers "complement the technology, rather than being substituted out by the technology." — Laura Tyson.
- Pay attention to those "left behind" to ensure globalization is inclusive and "allocates fairly within countries." — Christine Lagarde, IMF Managing Director.
- Avoid policy responses that build walls (protectionism, anti-immigration) as they risk worsening regional problems: "Making sure that we solve the problems of inequality [in the United States] by ensuring there is no immigration, or through protectionism—all of that just makes things worse for a region like Latin America." — Mauricio Cárdenas.

### Social and political consequences
- Advanced economies are experiencing social and political effects from rising inequality and reduced mobility.
- Perception of blocked mobility can be "a bigger problem than income inequality" and contributes to deep divisions over fairness and policy responses. — David Rubenstein, founder of The Carlyle Group.
- Political reactions to inequality may lead to anti-trade and anti-immigration sentiments: "The downside is that the reaction of the advanced economies to inequality is building walls." — Cardenas.

*Source: IMF NEWS — "Cause, Cure for Inequality Lies in Policies", October 7, 2016.*

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## Content in this bundle

- [Staff Discussion Note (PDF)](/external/pubs/ft/sdn/2015/sdn1514.pdf){rel="external" type="application/pdf"}

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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/)
- [Policy](https://www.imf.org/en/news/search)
- [Watch the seminar](http://www.imf.org/external/mmedia/view.aspx?vid=5161327724001)
- [Inequality & growth](https://blog-imfdirect.imf.org/2014/02/26/treating-inequality-with-redistribution-is-the-cure-worse-than-the-disease/)
- [inequality, globalization and technology](http://www.imf.org/external/POS_Meetings/SeminarDetails.aspx?SeminarId=180)
- [Annual Meetings](http://www.imf.org/external/am/2016/index.htm)
- [financial inclusion](https://blog-imfdirect.imf.org/2015/09/15/the-more-the-merrier-what-happens-when-more-people-use-financial-services/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2016/10/07/am16nainequalityseminar100716_