Reducing inequality remains a priority amidst rising trade tensions

Reducing inequality and accelerating growth of median incomes remain crucial challenges in many countries across the world. While several developing countries made progress towards reducing inequality during the commodity price boom of the 2000s, these improvements were largely cyclical and subject to volatility in global commodity markets. More significant improvements in line with the global goals targets, will require structural policy initiatives. To this end, countries are aligning their development strategies with specific SDGs targets, including SDG 1 – eradicating poverty – and SDG 10 – reducing inequalities.

Among the transition economies, the Russian Federation has recorded one of the highest levels of income inequality since the early 1990s. This can be attributed to the fast speed of transition which was accompanied by hyperinflation, and widespread wage arrears eroding incomes of those at the bottom of the income distribution. However, the recently adopted social development target to halve poverty by 2024 should contribute to declines in inequality.

In Egypt, recent policies reflect the evolving role of the government in addressing inequality and poverty. Price control measures were once applied in many parts of Africa as a key social protection policy tool to maintain stable prices of essential goods. However, these types of blanket subsidies are not the most effective tool to alleviate poverty and inequality. Recent evaluations of more targeted social protection policy measures, including conditional and unconditional cash transfers, are more encouraging for SDG 1 and 10.

Fiscal adjustments

Economic diversification remains a primary policy goal for the Gulf Cooperation Council (GCC). The introduction of a value-added tax (VAT) marks a historic milestone not only for fiscal revenue diversification but also for the social contract between the state and its citizens. The introduction of the VAT has created a valuable administrative infrastructure, which can act as a cornerstone for further economic and fiscal change in the GCC countries.

Across Latin America, fiscal pressures are creating significant policy challenges, forcing greater fiscal adjustments. The situation is particularly challenging in Argentina, which entered a Standby-Agreement with the IMF in June. To restore market confidence, the country’s new austerity measures comprise both cuts to public expenditure and higher tax revenues. The new programme threatens to push the economy into a prolonged recession, which could hit vulnerable populations hard.

Rising tensions

In the United States, major changes in the level and structure of taxation are expected to stimulate economic growth. However, income inequality will likely increase since high-income households and corporations reap the highest levels of tax relief. Recently, the US also imposed more tariffs on Chinese goods. In response, China announced retaliatory measures along with pro-growth strategies aimed at mitigating the effects of rising trade tensions on the domestic economy.

China’s plans to attract more investment into the high technology sectors is likely to lead to productivity and employment gains. The government also introduced their ‘National Plan on Implementation of the 2030 Agenda,’ which contains provisions to “sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average.”

Photo credit: UNICEF-NYHQ2015-2164-Georgiev

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