THE IMF CASTS A SPOTLIGHT ON THE PROBLEM OF INEQUALITY In times past, the IMF has placed the primary emphasis of its programs and policy recommendations on efficiency and growth. Yesterday in an event at the Peterson Institute, it formally unveiled an IMF Policy Paper on “Fiscal Policy and Income Inequality”, clearly taking the position that inequality is inimical to growth. The following passage from the report provides a good summary of its findings: “Economists are increasingly focusing on the links between rising inequality and the fragility of growth. Narratives include the relationship between inequality, leverage and the financial cycle, which sowed the seeds for crisis; and the role of political-economy factors (especially the influence of the rich) in allowing financial excess to balloon ahead of the crisis. In earlier work, we documented a multi-decade cross-country relationship between inequality and the fragility of economic growth. Our work built on the tentative consensus in the literature that inequality can undermine progress in health and education, cause investment-reducing political and economic instability, and undercut the social consensus required to adjust in the face of shocks, and thus that it tends to reduce the pace and durability of growth.” The policy recommendations flowing from this work highlight the importance of considering the income distribution effects of government tax and spending policies, as well as emphasizing the ways in which fiscal policies can be designed to achieve redistributional goals with minimum cost to economic efficiency. The linked page contains further links to several IMF studies supporting this important evolution in the Fund’s economic thinking. Also linked in the comment below is the presentation of these policies before an audience at the Peterson Institute by Deputy Managing Director, David Lipton.
Posted on: Fri, 14 Mar 2014 13:32:29 +0000
Trending Topics
Recently Viewed Topics
© 2015