How are Governments Doing in their Efforts to Fight Inequality?

Alleviate Poverty and Promote Economic Growth Fund
October 12, 2018

Oxfam-America Inc.

You’ve heard it before: The 42 richest people own as much wealth as half of humanity. Oxfam has been drawing attention to the global inequality crisis with that gut-wrenching data point. But isn’t extreme economic inequality inevitable? If not, what can be done about it?

Quite a bit. Oxfam and Development Finance International launched the Commitment to Reducing Inequality Index this week at the annual meetings of the World Bank and International Monetary Fund. This index ranks 157 countries according to how well their governments fight inequality through public spending on health, education and social protection, tax policy, and protection of labor rights.

Like Transparency International’s perception of corruption index, we hope the index will encourage a race to the top among governments. The index shows that all countries have room to improve their policies against inequality—even Denmark, which ranks first and trades on past glories, but is now backsliding. While rich countries tend to do better, not all do, like Singapore. Some poor countries do better than others, like Namibia, which achieves a decent score despite very a high level of income inequality. Some countries do well in one policy area—Mozambique on tax policy, for example—and less well in others.

The United States achieves a mediocre score and ranks 23rd in the world and last among G7 countries. The United States ranks at the top for public spending on health care as a proportion of total government spending, but millions of people lack health insurance and experience poor health outcomes. Spending on education is also relatively high, but unevenly distributed. Spending on social protection is low relative to other rich countries. The US labor rights score is very inadequate for a rich country, with a minimum wage below what is needed to keep working families above the poverty line and unchanged since 2009. The United States is one of only five countries in the world lacking mandatory paid parental leave. We expect the US score to fall in next year’s index as a result of the tax reform that came into force this year.

As we piloted a beta version of the index last year, we can also start using the index as a global dashboard to monitor trends in anti-inequality policies. For example, we note that in 2017 more countries increased rather than decreased the top rate of their personal income tax. But corporate income tax rates have more often come down than gone up. We should therefore worry about the continued race to the bottom that transfers the tax burden away from companies and capital and toward people and labor.

The index will also allow scoring individual governments over their tenure. We can, for instance, observe that South Korea and Indonesia are among the governments showing a real commitment to fighting inequality in 2017—while Hungary went in the opposite direction. Where there is a will, there is a way to reduce inequality.

The index includes measures of policies, implementation of policies, and effectiveness of policies in terms of reducing income inequality. It is a resource for academics to further our knowledge of inequality and ways to address it. The database, available online, includes over 7,000 data points.

Building such an index involves trade-offs and is subject to limitations, notably due to data availability. Experts will want to pore over our methodology, also available online. We very much welcome feedback. Let’s further the debate about how to address the global inequality crisis!

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