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.

Tailored Approach to Managing Public Finances

A new book by the IMF--Public Financial Management and Its Emerging Architecture--looks at reforms introduced by governments over the past two decades to improve management of public finances. These innovative ideas and reforms are changing the landscape of public finances and eventually aim to fundamentally change the way governments manage the public’s money.

The global financial and economic crisis highlighted the importance of sound public financial management in ensuring that well-designed fiscal policies are implemented effectively. Sound management of public finances means maintaining a sustainable fiscal position, allocating resources efficiently, and delivering public goods and services effectively.

The book looks at how reforms to public financial management make use of new information, processes, and rules to change the behavior of politicians and public servants to counter the ongoing challenges of managing government’s money. As identified in the book, too often the tendency for policymakers is to spend rather than save in good times; to focus on the short term; and to ignore the future costs of new policies, underlying fiscal risk, and the true state of public finances.

“The global crisis has highlighted that reforming governments’ management of public finances is no longer an option but a necessity. There is no ‘one-size-fits-all’ solution—reforms need to be tailored to countries’ individual circumstances,” said IMF Deputy Managing Director, Min Zhu, who addressed officials, journalists, and academics gathered at a special seminar to discuss the findings in the book.

IMF Survey article 

Book launch and Seminar on Public Financial Management and Its Emerging Architecture

Background and comments

Getting a Grip on Public Spending

Two books from the IMF are putting the spotlight firmly on the big spending issues of our times in advanced economies and some emerging markets--health care and pensions.

Health care reform is likely to remain a key fiscal policy challenge in both advanced and emerging economies in coming years. In the advanced economies, the health sector has been one of the main drivers of government expenditure, accounting for about half of the rise in total spending over the past forty years. 

Aging populations

These spending pressures are expected to intensify over the next two decades, reflecting the aging of the population, income growth, and continued technological innovations in health care. 

Spending increases will come at a time when countries need to undertake fiscal consolidation to reduce public debt ratios in the wake of the global financial crisis.

In the emerging economies, health care reform is also a key issue, given substantial lags in health indicators and limited fiscal resources. For these economies, the challenge will be to expand public coverage without undermining fiscal sustainability. The Economics of Public Health Care Reform in Advanced and Emerging Economies provides new insights into these challenges and potential policy responses, with cross-country analysis and case studies.

Pension reform is also high on the policy agenda of many advanced and emerging market economies. In advanced economies the challenge is generally to contain future increases in public pension spending as the population ages. In emerging market economies, the challenges are often different. 

Where pension coverage is extensive, the issues are similar to those in advanced economies. Where pension coverage is low, the key challenge will be to expand coverage in a fiscally sustainable manner. The Challenge of Public Pension Reform in Advanced and Emerging Economies examines the outlook for public pension spending over the coming decades and the options for reform in 52 advanced and emerging market economies.