Fiscal Monitor

At the global level, inequality has declined substantially over the past three decades, but within national boundaries, the picture is mixed: some countries have experienced a reduction in inequality while others, particularly advanced economies, have seen a significant increase that has, among other things, contributed to growing public backlash against globalization. Excessive levels of inequality can erode social cohesion, lead to political polarization, and ultimately lower economic growth, but whether inequality is excessive depends on country-specific factors, including the growth context in which inequality arises, along with societal preferences. This Fiscal Monitor focuses on how fiscal policy can help governments address high levels of inequality while minimizing potential trade-offs between efficiency and equity. It documents recent trends in income inequality, including inequality both between and within countries, then examines the redistributive role of fiscal policies over recent decades and underscores the importance of appropriate design to minimize any efficiency costs. It then focuses on some key components of fiscal redistribution: progressivity of income taxation, universal basic income, and public spending policies for achieving more equitable education and health outcomes. The analysis relies on the existing theoretical and empirical literature, IMF work on inequality and fiscal policy, country experiences, and new analytical work, including various static microsimulation analyses based on household survey data. Simulations using a dynamic general equilibrium model calibrated to country-specific data and behavioral parameters illustrate the potential impact of alternative budget-neutral tax and transfer measures on income inequality and economic growth.

Open Chapter 1 Full Table of Contents

• Introduction
• Inequality and Fiscal Redistribution
• Progressivity at the Top and at the Bottom
• Equalizing Opportunities through Education and Health
• Policy Implications and Conclusions
• References

Boxes
	1.1	Global Inequality Today and in 2035
	1.2	Equally Distributed Equivalent Income as a Measure of Social Welfare
	1.3	Bolivia: Inequality Decline during a Commodity Boom
	1.4	Measuring Tax Progressivity
	1.5	Taxing Wealth and Wealth Transfers
	1.6	Adopting a Universal Basic Income to Support Subsidy Reform in India
Annex
	1.1	Inequality Data Set
	1.2	Inequality Dimensions: Wealth, Opportunities, and Gender
	1.3	Model Simulations
	1.4	The Estimation of Elasticities
	1.5	Growth Regressions
	1.6	Empirical Assessment of a Universal Basic Income
	1.7	Health Outcomes and Inequality in Public Health Spending
Figures
	1.1	Global Income Inequality: Gini Coefficient, 1988–2015
	1.2	Decomposition of Global Income Inequality, 1988–2013
	1.3	Average Income Inequality across Regions and over Time, 1985–2015
	1.4	Change in Inequality by Region, 1985–2015
	1.5	Ratio of Share of Wealth Held by Top 1 Percent to Share Held by Top 10 Percent
	1.6	Change in Gini Coefficient and GDP Growth, 1985–2015
	1.7	Growth of Real Income per Capita, by Income Percentile in the Population, 1988–2008
	1.8	Regional and World Trends in Extreme Poverty Headcount, 1990–2013
	1.9	Redistributive Impact of Taxes and Transfers in Advanced Economies, 2015 or Latest Year
	1.10	Composition of Tax Revenues, by Region
	1.11	Composition of Social Spending, by Region
	1.12	Redistributive Impact of Income Taxes and Transfers, 2015 or Latest Year
	1.13	Median Tax Progressivity in Organisation for Economic Co-operation and Development Member Countries
	1.14	Selected Advanced Economies: Top Statutory Personal Income Tax Rate over Time
	1.15	Concentration of Income above the 95th Percentile, 1970–2012
	1.16	Top Marginal Personal Income Tax Rate across Social Welfare Function Weight for Top Earners
	1.17	Average Corporate Income Tax Rate, 1990–2015
	1.18	Average Coverage of Social Assistance Programs among Middle- and Low-Income Countries, by Region, Latest Available Year
	1.19	European Union Countries: Marginal Effective Tax Rates in Bottom Quartile of Income Distribution
	1.20	Key Features of Various Forms of Universal Basic Income
	1.21	Universal Basic Income Gross Fiscal Cost and Distributional Impact
	1.22	Financing Options for Universal Basic Income Scheme: South Africa, 2012
	1.23	Coverage and Progressivity of Safety Net Systems in Eight Country Cases
	1.24	Ratio of Female to Male Enrollment, Primary and Tertiary Education, 2000 and 2014
	1.25	Inequality in Access to Education and Test Scores by Socioeconomic Status
	1.26	Education Inequality and Inequality of Opportunity
	1.27	US Social Mobility and Education Outcomes by Parents’ Income, by State
	1.28	Inequality in School Resources and Education Outcomes
	1.29	Inequality in Longevity in High-Income Countries
	1.30	Infant Mortality in Emerging Market Economies and Low-Income Countries, 1994–2014
	1.31	Basic Health Coverage in Emerging Market Economies and Low-Income Countries, 1994–2014
	1.32	Trends in Out-of-Pocket Spending, 2003–14
	1.33	Basic Health Coverage Inequality and Health Outcomes
	1.1.1	Distribution of Global Income, 2015 and 2035
	1.1.2	Population by Individual Income Level and Region, 2015 and 2035
	1.2.1	Relationship between Social Welfare (or Equally Distributed Equivalent Income) and Average Income
	1.3.1	Contribution of Individual Factors to GDP Growth
	1.3.2	Contribution of Individual Factors to Decline in Gini Coefficient
	1.4.1	Average Tax Rate across Incomes
	1.4.2	Lorenz Curves
	1.6.1	India: Progressivity and Coverage of Public Distribution System and Fuel Subsidies
	1.6.2	India: Generosity of Public Distribution System and Fuel Subsidies
	Annex Figure 1.1.1	Gini Income Inequality Data Set: Five-Year Window, Unbalanced Sample, 1980–2015
	Annex Figure 1.1.2	Gini Income Inequality Data Set: Five-Year Window, Balanced Sample, 1985–2015 and 1995–2015
	Annex Figure 1.2.1	Wealth and Income Shares of Top Percentiles of Households, Selected OECD Countries, 2010 or Latest Available Year
	Annex Figure 1.2.2	Household Wealth Composition by Quintile and in Top Percentiles, Average among OECD Countries, 2010 or Latest Available Year
	Annex Figure 1.2.3	Wealth Distribution, 1990–2015 or Latest Available Year
	Annex Figure 1.2.4	Decomposition of Income of Top 1 Percent
	Annex Figure 1.2.5	Great Gatsby Curve: Income Inequality and Social Mobility
	Annex Figure 1.2.6	Income Inequality and Inequality of Opportunity
	Annex Figure 1.2.7	Gender Inequality Measures, 2015
	Annex Figure 1.3.1	United States: Average Effective Personal Income Tax Rate
	Annex Figure 1.3.2	United States: Changes in Effective Average Personal Income Tax Rate from Expanding Earned Income Tax Credit
	Annex Figure 1.3.3	United States: Macroeconomic Impact of Expansion of EITC under Various Financing Options
	Annex Figure 1.3.4	United States: Distributional Impact of Expansion of EITC under Various Financing Options
	Annex Figure 1.3.5	United States: Changes in Effective Average Personal Income Tax Rates from EITC and Financing with Progressive Taxation
	Annex Figure 1.3.6	United States: Macroeconomic Impact of Universal Basic Income under Various Financing Options
	Annex Figure 1.3.7	United States: Distributional Impact of Universal Basic Income under Various Financing Options
	Annex Figure 1.3.8	United States: Changes in Equally Distributed Equivalent Income under Reform Packages
	Annex Figure 1.4.1	Elasticities of Taxable Income, Based on Top Income Shares
Tables
	Annex Table 1.3.1	Industrial Sector Characteristics
	Annex Table 1.4.1	Median of Estimated Elasticities
	Annex Table 1.5.1	Progressivity and Growth: Annual Regressions
	Annex Table 1.5.2	Progressivity and Growth Regressions: Five-Year Intervals
	Annex Table 1.6.1	Gross Fiscal Cost and Redistributive Impacts of Universal Basic Income: All Individuals
	Annex Table 1.6.2	Gross Fiscal Cost and Redistributive Impacts of Universal Basic Income: Children and the Elderly