An Inequality Tax

The economic booms in China and India have helped to reduce global inequality. Over the two last decades, masses of Indians and Chinese have closed the gap (in relative terms) with the rich world.

But, at the same time, many of the world’s truly poor countries have fallen further behind (particularly in Africa, where developments are often described as catastrophic), and inequality within most countries has risen. Widening inequality has been recorded in the United States (starting with Ronald Reagan’s administration), the United Kingdom (starting with Margaret Thatcher), Russia during its privatization, and more recently in China and India.

These developments seem to add to global inequality. So, on balance, it seems that global inequality has been relatively stable during the last two decades.

Should anything be done about this? Many think that no global action to fight economic inequality is necessary. They argue that only poverty reduction matters. In the words of Anne Krueger, the Deputy Managing Director of the IMF, “Poor people are desperate to improve their material conditions…rather than to march up the income distribution [ladder].”