The IMF is offering a prescription of fiscal policies to promote inclusive growth and combat income inequality that is growing within many countries.
“In the Fiscal Monitor, we document trends in inequality around the world. We argue that fiscal policy is powerful in tackling inequality. We go so far as to claim that fiscal policy can make the difference,” said Vitor Gaspar, IMF Director of the Fiscal Affairs Department.
Gaspar said the strengthening global recovery provides an opportunity for such policies, though challenges remain.
“The emphasis on advanced economies is still on high levels of public debt, which are still very close to record highs. They’re now expected to slowly decline. But, according to our projections, they will still be above 100 percent of GDP on average for advanced economies by 2022,” said Gaspar.
Gaspar urged policymakers to engage in structural reforms and address imbalances.
“In emerging markets, fiscal consolidation has come to a standstill. And, the average public debt to GDP ratio is projected to increase up to the end of the forecasting period. In particular cases, where this rise in public debt coincides with the expansion phase of the credit cycle, that is a particular source of concern,” said Gaspar.
The report focused on three main policy debates to counter inequality: progressive taxation, Universal Basic Income (UBI) and spending in health and education.
In an analysis of a UBI compared to targeted fuel and food subsidies in India, the IMF found that a UBI could outperform the targeted subsidies.
“Given our estimates of the impact of the 2011 programs, a UBI would actually benefit the poor more for the same budgetary cost,” he said.
Gaspar noted that conditions within individual countries must be taken into account for any policy prescriptions.
A full copy of the report can be found at IMF.org.