Growing global inequality is hampering economic growth, and policies need to be put in place to reverse this trend.
That’s the conclusion made by the International Monetary Fund in a recently released analysis of global inequality. The researchers said policies are needed to address income inequality, and noted that as the wealth of the top 20 percent increases it does not benefit the overall economy.
“Earlier IMF work has shown that income inequality matters for growth and its sustainability,” the researchers said in the report. “Our analysis suggests that the income distribution itself matters for growth as well. Specifically, if the income share of the top 20 percent increases, then [gross domestic product] growth actually declines over the medium term, suggesting that the benefits do not trickle down.”
The researchers went on to say that by contrast, “an increase in the income share of the bottom 20 percent is associated with higher GDP growth. The poor and the middle class matter the most for growth via a number of interrelated economic, social and political channels.”
The IMF said policies aimed at improving access to education and health care for the poor and the middle class “can mitigate inequality.” Also key was to develop and implement policies in the labor market that “do not excessively penalize the poor” and can “help raise the income share for the poor and the middle class.”
“In advanced economies, the gap between the rich and poor is at its highest level in decades,” the researchers said. “Inequality trends have been more mixed in emerging markets and developing countries, with some countries experiencing declining inequality, but pervasive inequities in access to education, health care and finance remain.”
The authors noted that it is no surprise that the topic is “hotly debated” by policymakers, elected officials and business leaders.