Monday, 9 July 2012

Can Policymakers Stem Rising Income Inequality?

a study by David Coady and Sanjeev Gupta (Fiscal Affairs Department, International Monetary Fund) posted on iMF direct (via ToUChstone blog: A public policy blog from the TUC)

A summary of new research by the IMF shows income inequality has increased in most rich countries in recent years.

Taxes and transfers “have played a significant role in offsetting the increase in inequality”. Over the last two decades fiscal policy has reduced inequality by about a third in OECD countries – but the impact has weakened since the mid-1990s.

“We find that the reduction in the generosity of social benefits (particularly unemployment and social assistance benefits) and lower income tax rates, especially at higher income levels, have contributed most to the reduced impact of fiscal policy since the 1990s.”

This makes the likely impact of austerity worrying, but “fiscal policy can be used to mitigate the adverse impacts of consolidation by allowing automatic stabilizers (such as unemployment benefits) to work, protecting the most progressive social benefits, removing opportunities for tax avoidance and evasion, and increasing reliance on wealth and property taxes”.

Read post in full (with lots of links to further information).

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