Reducing income gaps and stimulating economy not contradictory
Governments can simultaneously reduce income inequality and stimulate economic growth. This is one of the main points of the Organisation for Economic Co-operation and Development (OECD) in ‘Reducing income inequality while boosting economic growth. Can it be done?’, a recently published chapter from the forthcoming report ‘Economic Policy Reforms 2012. Going for Growth’. The chapter offers several concrete suggestions for policy in which the two objectives are both likely met as well as measures that will more likely result in a tradeoff between the two.
Focus on fairer distribution and better accessibility of education and labour market
In suggesting measures that could both stimulate the economy and bridge the income gap, the writers focus among others on:
- Tax policy. A shift from taxation of income to taxation of wealth would increase equity. Moreover, governments are urged to cut back tax expenditures that benefit mainly high-income groups, such as tax relief on mortgage interest. This would create space for growth-friendly reductions in marginal tax rates that would benefit all tax payers.
- Education. Access to especially higher education has to be less dependent on personal and social circumstances. Increasing graduation rates also helps to reduce inequality.
- Labour market. Policy makers are advised to reduce dualism on the labour market. If they bridge the gap in provision between temporary and permanent contracts, income inequality will fall.
- Inclusion measures. Promoting integration of immigrants and implementing effective legal rules to fight discrimination between immigrants and non-immigrants and between men and women will also promote income equality.
More attention for growing income inequality
The report also shows that in the OECD-countries income
inequality has grown over the past decades. Apart from
investigating policy measures and their outcomes, it compares the
income inequality between the OECD-countries. According to the
writers, there is growing consensus that when measuring a country’s
economic success, not only its overall income growth matters, but
also income distribution.