New IMF chief, Kristalina Georgieva urges higher taxes on the wealthy to cut inequality – without sacrificing economic performance.
(In the 1990’s, the IMF was at the heart of the “Washington Consensus” – a free market approach to running economies that included the belief that tax cuts for the better off would have trickle down effects through greater innovation and higher growth.)
As a sign of how the International Monetary Fund has moved away from the tax-cutting approach that once formed a central part of its policy advice, Georgieva said there needed to be a different approach to tackling what had become “one of the most complex and vexing challenges in the global economy”.
“Over the past decade, inequality has become one of the most complex and vexing challenges in the global economy.
Inequality of opportunity. Inequality across generations. Inequality between women and men. And, of course, inequality of income and wealth. They are all present in our societies and —unfortunately— in many countries they are growing.
The good news is we have tools to address these issues, provided we have the will to do so. Despite the political difficulty of implementing reforms the payoffs for growth and productivity are worth the effort.
Policies to tackle inequality
Tackling inequality requires a rethink. First, on fiscal policies and progressive taxation.
Progressive taxation is a key component of effective fiscal policy. At the top of the income distribution, our research shows that marginal tax rates can be raised without sacrificing economic growth.
Utilizing digital tools in tax collection can also be part of a comprehensive strategy to boost domestic revenue. Reducing corruption can both improve collection and increase trust in government. Most importantly, these strategies can secure the necessary resources to invest in expanding opportunities for communities and individuals that have been falling behind.
Collaboration with partners
Whether it’s tackling inequality, or engaging on social spending, we know that we cannot do it alone.
We envision this as a partnership of international organizations, academics, country authorities, civil society and the private sector working together to enhance social spending policies and lay the groundwork for achieving the Sustainable Development Goals.
- For example, I recently met with G7 Labor Ministers, who have significant expertise on social, employment, and labor issues that can inform our policy advice. And we can in turn help by raising the profile of these issues in the broader economic policy discourse surrounding stability and growth.
- Also, international organizations like the World Bank and International Labor Organization have an invaluable knowledge on social spending.
- And civil society, academics, think tanks, and labor unions all offer unique perspectives as well. These perspectives enrich our views, help us to resist any temptation toward groupthink, and enable us to better appreciate country-specific