1、TEXTGrowing InequalityThe degree of income inequality varies greatly from region to region. It is greatest in Latin America and sub-Saharan Africa, and lowest in Eastern Europe; other regions fall between these two extremes. In Latin America, the average Gini coefficientthe most commonly used measur
2、e of inequality, with 0 representing perfect equality and 1 representing total inequalityis almost 0.5. The average Gini coefficient in sub-Saharan Africa is slightly lower, but there is considerable variation among countries. Income inequality has a regional dimension in both Africa and Latin Ameri
3、caaverage incomes are significantly higher in urban areas than in rural areas.,Unit Nine Should Equity Be a Goal of Economic Policy?,Unit Nine Should Equity Be a Goal of Economic Policy?,In recent years, income inequality has been increasing in a large number of countries. This increase has been mos
4、t striking in the transition economies, where the average Gini coefficient had been around 0.25 until the late 1980s; by the mid-1990s, it had risen to more than 0.30. While this may not appear to be a large increase, it is quite significant for the short period being assessed. Gini coefficients ten
5、d to be relatively stable in countries over long periods. Income inequality has also increased in several major industrial countries and is beginning to increase in some East Asian countries.,Unit Nine Should Equity Be a Goal of Economic Policy?,Much of the debate about income distribution has cente
6、red on wage earnings. But wages tell only part of the story. The distribution of wealth (and, by implication, capital income) is more concentrated than labor income. In Africa and Latin America, unequal ownership of land has been identified as an important factor in the overall distribution of incom
7、e. Furthermore, in recent years, there has been a shift from labor to capital income (including income from self employment) in many countries. In transition countries, this shift has been due primarily to the privatization of state-owned assets. The analysis of trends in nonlabor income in countrie
8、s with well developed capital markets and pension funds is more complicated. Pension funds and other financial institutions receive a sizable portion of capital income, and the share of capital income in total household income typically changes over the life cycle of the individuals in each househol
9、d.,Unit Nine Should Equity Be a Goal of Economic Policy?,Is Globalization the Cause?Globalization has linked the labor, product, and capital markets of economies around the world. Increased trade, capital and labor movements, and technological progress have led to greater specialization in productio
10、n and the dispersion of specialized production processes to geographically distant locations. Developing countries, with their abundant supply of unskilled labor, have a comparative advantage relative to developed countries in the production of unskilled-labor-intensive goods and services. As a resu
11、lt, production of these products in developed countries has come under increased competitive pressure. Economic theory tells us this should apply downward pressure on the relative compensation of unskilled workers in developed countries and upward pressure on the compensation of their counterparts i
12、n developing countries.,Unit Nine Should Equity Be a Goal of Economic Policy?,Based on this theory, some authors have claimed that globalization is to blame for growing income inequality in developed countries. Others argue that the widening gap between the wages of skilled workers and unskilled wor
13、kers in the developed countries is due to the development and dispersion of skill-intensive technologies rather than to increased trade. Several empirical studies have tried to gauge the relative importance of both trade and technological progress in the decline of relative wages of unskilled worker
14、s in developed countries. Estimates of the contribution of increased trade to the total increase of the wage differential between unskilled and skilled workers range from negligible to 50 percent. This large variation is a function of the structure of production in developed countries and the share
15、of their labor market that is in direct competition with low-skilled workers in developing countries.,Unit Nine Should Equity Be a Goal of Economic Policy?,The debate regarding the effect of globalization on income distribution in developing countries mirrors the debate on developed countries. Altho
16、ugh, all other things being equal, increased openness would be expected to increase the relative wages of unskilled workers in developing countries, experience has been mixed. Evidence suggests that the relative wages of unskilled workers increased in East Asian countries in the 1960s and 1970s but
17、decreased in Latin America in the 1980s and early 1990s. There are two possible explanations for why wages fell in Latin America: first, the opening up of developing Asian countriesBangladesh, China, India, Indonesia, and Pakistanwhere unskilled labor is even more abundant; second, the availability
18、of new production technologies that are biased toward skilled labor.,Unit Nine Should Equity Be a Goal of Economic Policy?,The effect globalization has on income distribution seems to be determined to some extent by a countrys level of development and the technologies available to it. Similarly, exp
19、osure to international competition may change institutions (for example, trade unions) and thereby affect income distribution. Some observers contend that, because of the mobility of capital, globalization limits the ability of union workers to achieve a “union wage premium,” thus decreasing the bar
20、gaining power of workers vis-vis capital. In addition, globalization may lead to sharp short-run changes in the distribution of income, as barriers to trade are reduced and the distribution of production is reallocated among sectors.,Unit Nine Should Equity Be a Goal of Economic Policy?,It is often
21、argued that globalization makes it more difficult for governments to implement equitable policies. Increasingly mobile capital and labor have limited the ability of governments to levy taxes and transfer income to those affected by globalization. To the extent that capital is more mobile than labor,
22、 the incidence of taxes to finance safety nets for those affected by globalization is shifted to labor.Policy ResponsesThe extent to which countries have focused on promoting equity and the strategies they have adopted vary widely. Some countries have actively promoted the use of public resources to
23、 raise the incomes of those on the bottom tier of the income distribution. Others have focused on the top percentiles by levying highly progressive taxes. Yet others, concerned that policies targeting the poor may result in economic inefficiencies and distortions that retard growth, have taken an in
24、direct approach, seeking to help low-income families by stimulating overall economic growth.,Unit Nine Should Equity Be a Goal of Economic Policy?,In Latin America during the 1980s, the primary goal of policymakers was achieving sustainable growth, and a viable balance of payments and structural ref
25、orms were seen as critical to achieving this goal. Growth has also been one of the primary goals of the transition economies, but their strategies have included policies aimed at helping groups likely to be hurt by the transition. Such policies have included the distribution of shares of privatized
26、enterprises, the adaptation of social policy instruments to protect vulnerable groups, and the establishment of social safety nets (for example, targeted subsidies, cash compensation in lieu of subsidies, severance pay and retraining for retrenched public sector employees, and public works programs)
27、. However, the lack of budgetary resources has made implementation of these policies difficult.,Unit Nine Should Equity Be a Goal of Economic Policy?,Fiscal policytaxation and spendingis a governments most direct tool for redistributing income, in both the short and the long run. However, the effect
28、 of redistributive tax policies, especially in the face of globalization, has been small. Policymakers should focus on developing a broadly based, efficient, and easily administered tax system with moderate marginal rates. Although the primary goal of the tax system should be to promote efficiency,
29、policymakers also need to consider how to distribute the burden of taxation so the system is seen as fair and just.The expenditure side of the budget offers better opportunities than the tax side for redistributing income. The link between income distribution and social spendingespecially spending o
30、n health and education, through which governments can influence the formation and distribution of human capitalis particularly strong, and public investment in the human capital of the poor can be an efficient way to reduce income inequality over the long run.,Unit Nine Should Equity Be a Goal of Ec
31、onomic Policy?,The amount of resources governments can and should devote to social expenditures depends on various factors, including the tax-to-GDP ratio and the resources devoted to other spending. Public expenditures should displace private expenditures only when they yield higher social benefits
32、. Priority should be given to the most productive public expenditures, and unproductive public expendituresfor example, excessive military spending, wages for an over-staffed civil service, and budgetary transfers to inefficient public enterprisesshould be curtailed. Civil service reform and the pri
33、vatization of services that can be better provided by the private sectorespecially if accompanied by a reallocation of expenditures to the social sectorsare likely to be both growth- and equity-enhancing, particularly in developing countries, where public sector employees come primarily from the mid
34、dle- and upper-middle-income classes.,Unit Nine Should Equity Be a Goal of Economic Policy?,Outlays on health and education can improve the existing pattern of income distribution, depending to a large extent on their allocation within sectors and who receives the benefits. Studies show that spendin
35、g on basic health care and primary education is far more effective in reaching the poor than spending on higher education or hospital-based curative care; the former reduces disparities in human capital across income groups and can decrease income inequality in the long run (see “Public Spending on
36、Human Development,” by Sanjeev Gupta, Benedict Clements, and Erwin Tiongson in this issue). Studies also show that, in countries without some form of health risk pooling, serious illnesses are the single most important factor driving families into poverty.,Unit Nine Should Equity Be a Goal of Econom
37、ic Policy?,Although fiscal policy is usually viewed as the principal vehicle for assisting low-income groups and those affected by reform programs, a number of countries have introduced specific labor market policies in an effort to influence income distribution, the rationale being that relative wa
38、ges exert a strong influence on overall income inequality. Many European countries have opted for high minimum wages, generous unemployment benefits, and a wide range of job-protection measures. Although these policies can result in rigidities, advocates maintain that they help achieve a socially de
39、sirable redistribution of income, while opponents argue that they discourage new investment and dampen job creation and growth. The United States, which has opted for more flexible labor markets, has achieved high employment levels, but the cost may be greater income inequality. To mitigate the pote
40、ntial effect of market flexibility on low-wage workers, the United States has introduced wage subsidies that,Unit Nine Should Equity Be a Goal of Economic Policy?,simultaneously redistribute income and promote employment. Given the potentially large impact of labor market policies on earnings, these
41、 competing visions of the labor market are central to the debate over income inequality in many developing and newly industrialized countries.Governments can also indirectly affect income levels and distribution through monetary policy and their overall macroeconomic stance. For example, high inflat
42、ion tends to curtail economic growth and increase income inequality. Trade liberalizationespecially when it occurs in developing countries that have had restrictive trade policies, such as taxation of agricultural exports and protective tariffs on importsmay boost economic growth and lead to more eq
43、uitable conditions. Currency devaluations may also have implications for equity, particularly in low-income countries, where the poor are often concentrated in the agriculture-intensive export sector and middle- and upper-income urban dwellers tend to be more dependent on imports.,Unit Nine Should E
44、quity Be a Goal of Economic Policy?,Another important issue is whether governments should focus on outcomessuch as decreasing the number of people living in povertyor on ensuring that all members of society have equal opportunities. In extreme cases of income inequality, outcomes are clearly critica
45、l. In other cases, setting up a level playing field may be all that is necessary, and greater emphasis can be placed on policies that facilitate mobility between income classes and on ensuring that income and wealth are acquired justly and fairly. Measures governments can take to promote equality of
46、 opportunity include deregulating the economy; setting up strong, accountable institutions, including a well-functioning judicial system; reducing opportunities for corrupt practices (curbing corruption can directly reduce income inequality, because the gains from corrupt practices tend to be captur
47、ed by the well-to-do); and providing adequate access to health and education services.,Unit Nine Should Equity Be a Goal of Economic Policy?,Governments seeking to implement equity-oriented policies face a number of obstacles. First and foremost is the financing required: high levels of spending on
48、targeted programs may not be consistent with a sustainable macroeconomic framework. Second, governments in many developing countries, where a large share of the population is engaged in rural and informal sector activities, may be unable to reach the most vulnerable groups. The rural and informal se
49、ctors may have limited interaction with formal sector institutions, including the government, making the delivery of government assistance (for example, cash transfers) problematic. In a similar vein, a lack of administrative capacity may hamper redistributive efforts; for example, tax evasion is a
50、severe problem in countries with weak tax administration, making it difficult for governments to use the tax system as a vehicle to finance redistributive policies. Political constraintslow-income groups typically have less political power than other,Unit Nine Should Equity Be a Goal of Economic Policy?,
