Combating the Rise of Inequality

Benedict Clements, co-editor of an IMF book on Inequality, discusses “one of the defining issues of our time”

Inequality is at the forefront of the economic policy debate today in much of the world

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How is the IMF contributing to the debate about rising income inequality?  

On many fronts. First, we are doing new research on the causes of inequality and its macroeconomic implications. Second, we are doing studies on how economic policies and reforms can help countries achieve their equity goals. Our book on Inequality andFiscal Policy is an example of this kind of research.  Third, we are deepening our work on individual countries in the context of our annual consultations with them. 

What’s the importance of this work?

In many countries, achieving more “inclusive” growth—the kind that creates a high number of jobs and does not increase inequality—is a priority.  In this context, policymakers are eager to know the effects of economic policies on inequality and the effects of these policies on economic growth.  As an advisor to countries on macroeconomic and fiscal policies, the IMF has an important role.  In our book, we look at the evidence and provide guidance for policymakers and Fund staff on these issues.  The good news is that there are many reforms that both reduce inequality and boost growth.  Greater use of property taxes to raise revenues and the reform of energy subsidies are two such examples.     

How much has French economist Thomas Piketty’s book fueled this debate?

Piketty’s work has helped draw attention to the issue.  This is just one of many excellent studies that have documented the rise in inequality.  Of equal importance is the work that examines what countries can do to address it.

In your own case, what attracted you to economics and in particular to fiscal issues?

During my college years, I took a trip to Latin America with the Maryknoll Fathers, who work with the poor.  That trip helped show me that economics really matters when it comes to poverty and inequality. I’ve been interested ever since.

Benedict Clements is a division chief in the Fiscal Affairs Department of the IMF. He has worked in the IMF since 1991 and has published extensively on public finance and macroeconomic issues.

Piketty Becomes Superstar Economics Author

Capital in the Twenty-First Century, already a best seller, is an invaluable contribution to how we understand inequality and its possible consequences.

Thomas Piketty—economist from the Paris School of Economics and ground-breaking researcher on income inequality--examines data from more than twenty countries spanning in some cases as far back as the 18th century to assess the dynamics of income and wealth distribution, with a particular focus on the role of capital ownership as a driver of long-run trends in income inequality. He argues that when the rate of return on capital exceeds the rate of economic growth, as it has for most of history, then rising income inequality becomes inevitable. He says that if this rising inequality is allowed to continue unchecked, the results could be deep political and social disruption.

While Piketty notes that inequality has different dimensions across countries, he concludes with a recommendation: significantly increase the progressivity of both income and wealth taxation. Given the extraordinarily globalized market for capital, he further argues that the reach of such taxes must be global as well.

Here"s a quick guide to the book from The Economist: Thomas Piketty’s “Capital”, summarised in four paragraphs

PBS Economics correspondent Paul Solman interviews Piketty for his take on why inequality of wealth has reverted to a lofty level last seen in 19th century Europe.




The Economic Policy Institute and the Washington Center for Equitable Growth host a presentation by Thomas Piketty:




The Guardian on What You Need to Know

CEPR and the Bank of England joint workshop (includes videos)

Reviews:

Paul Krugman, in the New York Review of Books

Larry Summers      Robert Solow        Brad DeLong    Jeffrey Frankel

Mervyn King, former Governor of the Bank of England

Why is it a bestseller?

Brad DeLong (again)    A critique from Daron Acemoglu and James Robinson

Dani Rodrik  "Piketty and the Zeitgeist"                    The Spectator magazine

Financial Times:Piketty’s Data Is Full of Errors     Piketty's Response

and Piketty's longer (10 page) response

NYT: Did Thomas Piketty Get His Math Wrong?

The Economist on Piketty's calculations

The view from France