23/01/12 - Countries should fight rising inequality with policies that simultaneously curb the income gap between rich and poor while boosting economic growth.
New OECD research – part of the wider Going for Growth structural reform programme - demonstrates how labour market reforms, tax and transfer systems and high-quality education can yield a double dividend: boosting GDP while reducing income inequality.
“Rising inequality is one of the major risks to our future prosperity and security,” said OECD Chief Economist Pier Carlo Padoan. “The main challenge facing governments today is implementing reforms that get growth back on track, put people to work and reduce the widening income gap,” Mr Padoan said.
As the economic crisis is forcing cash-strapped governments to re-think tax and benefit systems, the OECD says that the reform process should be seen as an opportunity to address inequality and growth issues simultaneously. A priority should be the reduction or elimination of tax breaks that primarily benefit the well-off, which would create space for growth-friendly reductions in marginal tax rates for all taxpayers.
Labour market reforms offer similar win-win solutions: reducing the existing gap in employment protection between temporary workers and those on permanent contracts would reduce the average 25% wage differential between these two types of employees while boosting employment and growth, the OECD said. Provision of more affordable child care will similarly improve labour force participation rates and incomes for women.
Improving educational outcomes, particularly for immigrants and socio-economically disadvantaged populations, will have long-term impacts on their employment opportunities, incomes and inequality.
For further information on the new OECD research, download the Going for Growth chapter: Reducing income inequality while boosting economic growth.
A second Going for Growth chapter - Under shock: how to spread macroeconomic risks more fairly - discusses the types of policies that governments can use to protect the most vulnerable from employment and income losses during crises.
Two OECD economics department policy notes are also available: “Inequality in Labour Income – What are its drivers and how can it be reduced?” and “Income Inequality and Growth: the Role of Taxes and Transfers.”
For further information, journalists should contact the OECD Media Division (email@example.com, +33 1 4524 9700).