Skyrocketing income equality hinders economic growth, according to a new study released by the International Monetary Fund that offers a series of suggestions for how to reduce the widening wealth gap.
While stopping short of offering an “optimal degree of fiscal redistribution,” the new IMF report suggests nations should improve access to higher education and health care, especially for those on the lower end of the economic spectrum, and to raise retirement ages for pension systems.
The report also notes the potential benefits of converting from regressive to more progressive tax systems, including less sales tax and income tax systems that require the wealthy to contribute a greater percentage, while noting that upper end rates above 50% could begin to discourage growth. It also suggests reducing tax breaks that generally offer greater benefit to the wealthy.
“Moreover, evidence from public surveys in various countries indicates that widening income inequality has been accompanied by growing public demand for income redistribution, especially in countries most strongly affected by the crisis,” authors note.
This new report comes on the heels of another IMF study released last month which found steep income inequality is linked closely with weak economic growth and that income redistribution does not necessarily hurt economic expansion–a surprising direction for the organization that typically gives sizable loans with austerity requirements to countries in crisis.
But the importance of tackling income inequality has become a recent focus, with IMF Managing Director Christine Lagarde describing income inequality as a “big issue” late last year.
“There is a clear indication that rising inequality leads to less sustainable growth, not to mention the social fabrics of society can be at stake. So reducing inequality, making sure that people have a job, that there is growth, that there is adequate redistribution through various systems, is important,” she said in an interview on Meet the Press in December.
