Press Release No. 15/113

JAPAN-IMF Seminar Discusses Challenges Related to Inequality

March 13, 2015

The IMF’s Regional Office for Asia and the Pacific (OAP) and Hitotsubashi University held a conference in Tokyo on March 12-13, to discuss challenges related to inequality and potential policy actions, with particular focus on the experience of Asian countries.

The conference, “Inequality: What Has Been Happening, Why Does It Matter, and What Can Be Done?” brought together senior policymakers, academics, and representatives from the IMF, ADB and UNDP. The Japanese government financed the conference, which is part of OAP capacity building activities in the region.

Deputy Director of the IMF Research Department Jonathan Ostry presented recent empirical research that highlights the links between inequality, growth and redistribution. Ostry’s most recent work showed that higher inequality tends to be associated with lower growth, more unequal countries tend to redistribute more, and redistribution is on average, pro-growth because it improves equality. “Inaction about inequality is unlikely to be appropriate in many cases, and we should not jump to the conclusion that the treatment for inequality (redistribution) may be worse for growth than the disease itself,” Ostry said.

Drawing on a recent IMF Board paper, Deputy Director of the IMF Fiscal Affairs Department Sanjeev Gupta discussed how to design efficient fiscal redistribution policies. “Redistributive fiscal policy should be consistent with macroeconomic objectives, tax and expenditure measures need to balance distributional and efficiency objectives, and design should take into account administrative capacity” Gupta said.

Seminar participants discussed the policies of selected Asian countries in dealing with inequality. In addition to fiscal redistribution, these included the conditional cash transfer program and financial inclusion initiatives in the Philippines; policies to facilitate upward mobility and build customized social safety nets in Korea; and the equity impact of monetary policy and structural reforms in various countries.

In his concluding remarks, OAP Director Odd Per Brekk said recent research has made it clear that reducing inequality is important for growth and macroeconomic stability. This is due to the positive effects on health and human capital accumulation, and indirect effects, such as helping creating social consensus for needed structural reforms.

The discussion also highlighted that, while tax and spending measures often take the center stage in reducing inequality, other policies also matter. “While the details of the policies should obviously be country-specific, not only fiscal policies, but also financial, labor market and structural policies should be part of the toolkit” Brekk said.

Bangladesh, Cambodia, China, Japan, Korea, Lao P.D.R., Mongolia, Philippines, Sri Lanka, Thailand, and Vietnam were represented in the seminar.

The conference’s program and presentations are available at: http://www.imf.org/external/np/seminars/eng/2015/hit2015/index.htm