Income Equality

According to the richest countries, income inequality is the number one problem in the world. It even beat out global warming. The head of the IMF said, “the richest 85 people have as much as 1/2 of the world population (3.5 billion people.) She said the richest 85 could fit on a double deck bus.

The IMF’s website states: Income inequality has increased in both advanced and developing economies in recent decades. Evidence from public surveys indicates that widening income inequality has been accompanied by growing public demand for income redistribution.

Fiscal policy is the primary tool for governments to affect income distribution. Rising income inequality in advanced and developing economies has coincided with growing public support for income redistribution. This comes at a time when fiscal restraint is an important priority in many advanced and developing economies. In the context of the Fund’s mandate to promote growth and stability, this paper describes: (i) recent trends in the inequality of income, wealth, and opportunity in advanced and developing economies; (ii) country experience with different fiscal instruments for redistribution; (iii) options for the reform of expenditure and tax policies to help achieve distributive objectives in an efficient manner that is consistent with fiscal sustainability; and (iv) recent evidence on how fiscal policy measures can be designed to mitigate the impact of fiscal consolidation on inequality. This paper does not advocate any particular redistributive goal or policy instrument for fiscal redistribution.

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