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Tuesday, January 07, 2020 / 05:49 PM/ by Kristalina
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Over the past decade,
inequality has become one of the most complex and vexing challenges in the
global economy.
Inequality of opportunity. Inequality across generations. Inequality
between women and men. And, of course, inequality
of income and wealth . They are all present in our
societies and-unfortunately-in many countries they are growing.
The good news is we have tools to address these issues, provided we have
the will to do so. Despite the political difficulty of implementing reforms the
payoffs for growth and productivity are worth the effort.
Policies to tackle inequality
Tackling inequality requires a rethink. First, on fiscal policies
and progressive taxation.
Progressive taxation is a key component of effective fiscal policy. At
the top of the income distribution, our research shows that marginal tax rates
can be raised without sacrificing economic growth.
Utilizing digital tools in tax collection can also be part of a
comprehensive strategy to boost domestic revenue. Reducing corruption can both improve collection
and increase trust in government. Most importantly, these strategies can secure
the necessary resources to invest in expanding opportunities for communities
and individuals that have been falling behind.
Gender budgeting is another valuable
fiscal tool in the fight to reduce inequality. While many countries recognize
the need for gender equality and women's empowerment, governments can use
gender budgeting to structure spending and taxation in ways to advance gender
equality even further-increasing women's participation in the work force and,
in turn, boosting growth and stability.
Second, social spending policies are increasingly relevant in tackling
inequality. When done right they can play a fundamental role to mitigate income
inequality and its detrimental effects on inequality of opportunity and social
cohesion.
Education, for example, prepares young people to become productive
adults who contribute to society. Health care saves lives and can also improve
the quality of life. Pension programs can allow the elderly to preserve their
dignity in old age.
The ability to scale up social spending is also essential for achieving
the SDGs. A new IMF study shows that the required
scaling-up varies widely across countries.
Third, reforms to the structure of the economy could further support
efforts to reduce inequality by reducing adjustment costs, minimizing regional
disparities, and preparing workers to fill a growing number of green jobs.
How the IMF supports countries
to reduce inequality
Over the past decade, the IMF's efforts to tackle inequality have become
embedded in our surveillance, lending, research, and capacity development work,
and that will continue in the decade ahead.
A cornerstone of our approach to issues of economic inclusion is
our social spending strategy .
Our engagement with countries begins from the premise that social
spending needs to be adequate, yet also efficient and sustainably financed.
These are not just yardsticks. They are guiding principles underpinning our
policy advice.
For instance, if social spending is inadequate to achieve the SDGs or to
protect a significant share of poor and vulnerable households, then it needs to
be increased.
Similarly, changing demographics will push issues of fiscal
sustainability to the forefront of the discussion on social spending, including
health and pension spending.
Most importantly, mitigating the adverse effects of adjustment on the
poor and vulnerable is now, and will continue to be, an important objective.
Implementation in practice
Recent examples of our engagement on social spending with countries
offer valuable lessons:
Importantly, we recognize that nobody benefits from another glossy
report sitting on a shelf. For this reason, we are working to implement our
social spending strategy by weaving it into the fabric of our work so our
engagement is better tailored to country-specific preferences and
circumstances.
Collaboration with partners
Whether it's tackling inequality, or engaging on social spending, we
know that we cannot do it alone.
We envision this as a partnership of international organizations,
academics, country authorities, civil society and the private sector working
together to enhance social spending policies and lay the groundwork for
achieving the SDGs.
Of course, there is no one-size-fits-all when it comes to social
spending. Countries have different preferences, face different challenges, and
aspire to different things. But by working together, we are more likely to ask
the right questions and in turn to find the right answers.
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