Inequality: Fiscal Policy Can Make the Difference

By Vitor Gaspar and Mercedes Garcia-Escribano

 October 11, 2017

Versions in عربي (Arabic),  Español (Spanish), Français (French), 日本語 (Japanese), Русский (Russian)

Wealth and poverty side-by-side in Rio de Janeiro, Brazil: inequality is rising within countries around the world (photo: Jean-Marc David/SIPA/Newscom). 

Income inequality among people around the world has been declining in recent decades. This is due to countries like China and India’s incomes catching-up to advanced economies. But the news is not all good. Inequality within countries has increased, particularly in advanced economies. Since the global economic recovery has gained pace and is now widespread, policymakers have a window of opportunity to respond with reforms that tackle inequality, and our new Fiscal Monitor shows how the right mix of fiscal policies can make the difference.

Continue reading “Inequality: Fiscal Policy Can Make the Difference” »

Global Economic Upswing Creates a Window of Opportunity

By Maurice Obstfeld

October 10, 2017

Versions in عربي (Arabic), 中文 (Chinese), Français (French), 日本語 (Japanese), Русский (Russian), and Español (Spanish)

 

The global recovery is continuing, and at a faster pace. The picture is very different from early last year, when the world economy faced faltering growth and financial market turbulence. We see an accelerating cyclical upswing boosting Europe, China, Japan, and the United States, as well as emerging Asia.

The latest World Economic Outlook has therefore upgraded its global growth projections to 3.6 percent for this year and 3.7 percent for next—in both cases 0.1 percentage point above our previous forecasts, and well above 2016’s global growth rate of 3.2 percent, which was the lowest since the global financial crisis. Continue reading “Global Economic Upswing Creates a Window of Opportunity” »

The Disconnect Between Unemployment and Wages

By Gee Hee Hong, Zsoka Koczan, Weicheng Lian, Malhar Nabar

September 27, 2017

Versions in عربي (Arabic), 中文 (Chinese), Español (Spanish), Français (French),  Русский (Russian)

Demand for workers is rising, but pay is hardly catching up (photo: Shironosov/iStock).

Over the past three years, labor markets in many advanced economies have shown increasing signs of healing from the Great Recession of 2008-09. Yet, despite falling unemployment rates, wage growth has been subdued–raising a vexing question: Why isn’t a higher demand for workers driving up pay?

Our research in the October 2017 World Economic Outlook sheds light on the sources of subdued nominal wage growth in advanced economies since the Great Recession.  Understanding the drivers of the disconnect between unemployment and wages is important not only for macroeconomic policy, but also for prospects of reducing income inequality and enhancing workers’ security. Continue reading “The Disconnect Between Unemployment and Wages” »

Growth That Reaches Everyone: Facts, Factors, Tools

By Rupa Duttagupta, Stefania Fabrizio, Davide Furceri, and Sweta Saxena

September 20, 2017

Versions in Русский (Russian), Español (Spanish) 

People lining up in front of a charity house in São Paulo, Brazil: Over 200 million people around the world are unemployed, despite overall economic growth (photo: Paulo Whitaker/Reuters/Newscom)

Economic growth provides the basis for overcoming poverty and lifting living standards. But for growth to be sustained and inclusive, its benefits must reach all people.

While strong economic growth is necessary for economic development, it is not always sufficient.

Over the past few decades, growth has raised living standards and provided job opportunities, lifting millions out of extreme poverty. But, we have also seen a flip side. Inequality has risen in several advanced economies and remains stubbornly high in many that are still developing. Continue reading “Growth That Reaches Everyone: Facts, Factors, Tools” »

The Benefits and Costs of a U.S. Tax Cut

By Sandra Lizarazo, Adrian Peralta-Alva, and Damien Puy

September 1, 2017

Versions in Español (Spanish)

A recent IMF paper looks at the effects of lowering personal income tax rates on income distribution and the U.S. economy (photo: Ingram Publishing/Newscom)

U.S. lawmakers getting ready to rewrite the nation’s tax code have a fundamental question to answer: What are the priorities for tax reform? Do you want faster growth? Less income inequality? A tax cut that doesn’t increase the budget deficit? In a recent working paper, we find that, depending on how a tax cut is targeted, it is possible to make some progress toward the first two objectives. Personal income tax cuts can help support growth and, if well targeted, can also help improve income distribution. However, we find that lowering personal income tax rates does not raise growth enough to offset the revenue loss that is caused by the tax cut itself. Continue reading “The Benefits and Costs of a U.S. Tax Cut” »

Corrosive and Costly Corruption

By IMFblog

July 14, 2017 

Corruption can hurt growth and ruin people’s economic chances (photo: Eugene Keebler/iStock)

Corruption can lead to pervasive distrust in government, generating violence, civil strife, and conflict. And the results are devastating for people.

Another problem is that corruption is costly—particularly for those who are already worse off. IMF research shows that in countries with greater levels of corruption, infant mortality and dropout rates are especially high, partly due to less spending on health and education. Reduced investment in these areas tends to hurt poor people the most, and contributes to higher inequality. Continue reading “Corrosive and Costly Corruption” »

No Time to Stand Still: Strengthening Global Growth and Building Inclusive Economies

By Christine Lagarde

July 5, 2017

Versions in عربي (Arabic), 中文 (Chinese), Français (French), Deutsch (German), 日本語 (Japanese), Русский (Russian), and Español (Spanish)

The port of Hamburg, Germany: G20 leaders meet to discuss policies to strengthen the global economic recovery (photo: Markus Lange/robertharding/Newscom)

Nearly sixty years ago, a little-known band called the Beatles arrived in Hamburg, got a haircut, recorded their first song, and found their sound.

Taking a cue from the Fab Four, world leaders gathering for the Group of Twenty Summit this week can make the most of their time in Hamburg—and leave Germany with a sound plan to strengthen global growth.

Continue reading “No Time to Stand Still: Strengthening Global Growth and Building Inclusive Economies” »

Chart of the Week: Ireland’s Fight Against Income Inequality

By IMFBlog

June 30, 2017

Shoppers in Dublin, Ireland: the country has high income inequality, before taxes and transfers (photo: Caro Rupert Oberhaeuser/Newscom)

Ireland’s economy continues to recover after a housing market crash in 2008 plunged the country into a deep and severe crisis. The strong social welfare system provided an important cushion against the worst effects of the crisis.

Ireland’s tax-benefit system is one of the most effective in the European Union in redistributing income. The tax system is relatively progressive and funds a robust system of social benefits, a significant share of which is means-tested. Income inequality before taxes and transfers in Ireland is high—37 percent of income is held by the top 10 percent of income earners. Social transfers make up about 70 percent of income for the bottom 20 percent of earners.

Continue reading “Chart of the Week: Ireland’s Fight Against Income Inequality” »

A New Twist in the Link Between Inequality and Economic Development

By Francesco Grigoli

May 11, 2017

Version in  عربي (Arabic),  Español (Spanish)

Much has been written about the relationship between inequality and economic development, but theory remains inconclusive. When income is more concentrated in the hands of a few individuals, this can lead to less demand by the general population and lower investment in education and health, impairing long-term growth. At the same time, a certain level of inequality endows the rich with the means to start businesses, and creates incentives to increase productivity and investment, promoting economic activity. But the initial inequality levels also matter to explain why an increase in inequality varies in its impact on economic development across countries.

Continue reading “A New Twist in the Link Between Inequality and Economic Development” »

The Economics of Trust

By IMFBlog

May 10, 2017

Trust in other people—the glue that holds society together—is increasingly in short supply in the United States and Europe, and inequality may be the culprit.

In surveys over the past 40 years, the share of Americans who say that most people can be trusted has fallen to 33 percent from about 50 percent. The erosion of trust coincides with widening disparities in incomes. Continue reading “The Economics of Trust” »

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