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Pay Low-Income Families More To Boost Economic Growth, Says Imf

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http://www.theguardian.com/business/2015/jun/15/focus-on-low-income-families-to-boost-economic-growth-says-imf-study

The idea that increased income inequality makes economies more dynamic has been rejected by an International Monetary Fund study, which shows the widening income gap between rich and poor is bad for growth.

A report by five IMF economists dismissed “trickle-down” economics, and said that if governments wanted to increase the pace of growth they should concentrate on helping the poorest 20% of citizens.

The study – covering advanced, emerging and developing countries – said technological progress, weaker trade unions, globalisation and tax policies that favoured the wealthy had all played their part in making widening inequality “the defining challenge of our time”.

http://www.imf.org/external/pubs/cat/longres.aspx?sk=42986

Causes and Consequences of Income Inequality : A Global Perspective Author/Editor: Era Dabla-Norris ; Kalpana Kochhar ; Nujin Suphaphiphat ; Frantisek Ricka ; Evridiki Tsounta Publication Date: June 15, 2015 Electronic Access: Free Full text (PDF file size is 1,704KB).
Use the free Adobe Acrobat Reader to view this PDF file
Summary: This paper analyzes the extent of income inequality from a global perspective, its drivers, and what to do about it. The drivers of inequality vary widely amongst countries, with some common drivers being the skill premium associated with technical change and globalization, weakening protection for labor, and lack of financial inclusion in developing countries. We find that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth—that is, when the rich get richer, benefits do not trickle down. This suggests that policies need to be country specific but should focus on raising the income share of the poor, and ensuring there is no hollowing out of the middle class. To tackle inequality, financial inclusion is imperative in emerging and developing countries while in advanced economies, policies should focus on raising human capital and skills and making tax systems more progressive.

Shock finding, it's like the rich don't have a propensity to consume...

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actually, raising the income of the bottom 80% would have the great effect of raising house prices by 10 times the cost of the income, says banker using "affordability criteria" in domestic debt issuance, and Government debt issuance.

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Low income families already receive enough - extra child and working tax credits, housing benefit top ups, free school meals, free prescriptions etc. It's quite easy to work part time and get more than a full time worker on £50k if you have a couple of kids and earn minimum wage and benefits aren't taxed!

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Low income families already receive enough - extra child and working tax credits, housing benefit top ups, free school meals, free prescriptions etc. It's quite easy to work part time and get more than a full time worker on £50k if you have a couple of kids and earn minimum wage and benefits aren't taxed!

yeah, but, that extra income does come out of the pocket of the £50K worker, who now doesnt have the economic choices of what to spend on what he likes any more.

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yeah, but, that extra income does come out of the pocket of the £50K worker, who now doesnt have the economic choices of what to spend on what he likes any more.

If low income families got a bit less in benefits and had to tighten their belts a bit and make decisions about having more kids they can afford, perhaps those who do not get benefits would have a bit more money after tax (because their tax would reduce) to spend in the wider economy. When it's not your money you are spending, you can be frivolous. When you have earned the money yourself you think more about how you spend it imo.

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actually, raising the income of the bottom 80% would have the great effect of raising house prices by 10 times the cost of the income, says banker using "affordability criteria" in domestic debt issuance, and Government debt issuance.

Indeed, giving poor people (and even the not so poor) more money is pointless since it will just get soaked up in increased housing costs. Essentially our rentier economy puts glass ceiling on living standards that can only be broken by reduced housing costs.

Edited by goldbug9999

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If low income families got a bit less in benefits and had to tighten their belts a bit and make decisions about having more kids they can afford, perhaps those who do not get benefits would have a bit more money after tax (because their tax would reduce) to spend in the wider economy. When it's not your money you are spending, you can be frivolous. When you have earned the money yourself you think more about how you spend it imo.

I dont think low income "families" are in a bad way at all, as you say.

Who are in a bad way are the childless, the flown nesters, the single and the trapped in benefits uneducated.

In my workclub, the "mums" are very choosy about the work they do...they have outfits to wear for interview, they all have computer AND mobile comms, they drive and they stop for coffee in the cafe downstairs....its almost a ritual.

The ones that are trapped are the childless, focused on the 16 hours limit, very worried about the Housing benefit being stopped.

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Agree with the sentiment above - give poor people more money, and suddenly.....they can borrow more! House prices rise....everything is about debt. If you have more money, it means you're allowed to borrow more, and people ALWAYS DO.

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I think cut benefits and higher wages and let people decide if they want kids,stay single etc.

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I think cut benefits and higher wages and let people decide if they want kids,stay single etc.

A new local shop has opened.

They recruited. a week later, they sacked.

why?...they got cover for the entire work week from 7am till 8pm daily...after the weekend launch, business dropped, to what is probably normal...even at NMW, the cover they thought they needed wasnt.

Its not so easy to simply raise wages.

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I dont think low income "families" are in a bad way at all, as you say.

Who are in a bad way are the childless, the flown nesters, the single and the trapped in benefits uneducated.

In my workclub, the "mums" are very choosy about the work they do...they have outfits to wear for interview, they all have computer AND mobile comms, they drive and they stop for coffee in the cafe downstairs....its almost a ritual.

The ones that are trapped are the childless, focused on the 16 hours limit, very worried about the Housing benefit being stopped.

The benefits system should be overhauled completely and be based on contributions and not need. It's scandalous how disadvantaged working single people are from both a tax and benefits perspective. I always see on Mumsnet this argument that the children of those on benefits are needed because they will become future taxpayers and pay the pensions of the older generation but what actually happens is that many of them just become benefit claimants or get paid so little that they need huge benefit top-ups. And in the future they will need more suckers at the bottom of the ponzi to pay for them. They should just cap benefits at 2 children (the replacement rate) and give larger families a year before they implement it so they can get used to it.

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Low income families already receive enough - extra child and working tax credits, housing benefit top ups, free school meals, free prescriptions etc. It's quite easy to work part time and get more than a full time worker on £50k if you have a couple of kids and earn minimum wage and benefits aren't taxed!

Utter nonsense and drivel. Did you somehow stumble onto this forum from the Daily Mail comments section?

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saying that, we do need the kiddies. it is our job in life to make them.

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Think the government is falling into a trap with its war on benefits (for the 'poor' however you may define poor). I've no doubt the benefits for the rich (usually called subsidies) will be maintained.

With a State support diminished or removed completely, people are far more likely to save for a rainy day, which may or may not be a good thing. The State support acting as a surrogate savings system.

A high spending consumer economy does not compute with a non existent welfare one. You've only to look East to find out why.

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A new local shop has opened.

They recruited. a week later, they sacked.

why?...they got cover for the entire work week from 7am till 8pm daily...after the weekend launch, business dropped, to what is probably normal...even at NMW, the cover they thought they needed wasnt.

Its not so easy to simply raise wages.

Obviously its a lot easier for the market to increase purchasing power and living standards by providing lower prices rather than higher wages, as we saw in 2009.

However, politically, thats unwanted. It would show up the vast majority of managers and CEO's to be no good, failing to maintain growth above inflation levels. Its also very difficult for employers to give wage cuts, even if they have gained via lower prices.

Edited by Executive Sadman

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A report by five IMF economists dismissed “trickle-down” economics, and said that if governments wanted to increase the pace of growth they should concentrate on helping the poorest 20% of citizens

Who knew!

Remind me why we just elected "trickle-down" government?

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A high spending consumer economy does not compute with a non existent welfare one. You've only to look East to find out why.

I don't think anyone is arguing for "non existent" welfare. The thing is you have to make people on benefits worse off than people who work otherwise its moral hazard on a grand scale and creates all the wrong social and economic imperatives.

Edited by goldbug9999

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The idea that increased income inequality makes economies more dynamic

eh? who said that? I'm guessing no one other than guardian contributors.

It's part of the neoliberal mantra about how income inequality doesn't matter as wealth will trickle down. Inequality helps to lift the poor about of poverty because people can see there hard work gets rewarded.

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I earn enough to pay higher rate tax. I'm single and have no kids. I have no entitlement to tax credits. I have no hope of social housing. If I lost my job I would get the absolute bare minimum - and the house deposit I've been saving would ensure I'd get zero once the contributions-based period expired.

So far so good. I don't need state help and I shouldn't get it. I have no problem with paying tax for the social security system.

In theory.

In practice, thanks to crazy housing costs, my living standards are much worse than that of a family on benefits. If you can't claim housing benefit, you can't get a housing association property, and you don't earn six figures (in London) or well above average (elsewhere) in order to buy a decent property, then you'll be stuck renting some hovel. And if you're single, that means sharing with strangers.

Income inequality is unfair and counter-productive. I think we've proved by now that trickle-down is nonsense.

But the way the benefits system works is also completely unfair. Why are my taxes paying for someone else's family to live in a decent house, when I am stuck sharing with European immigrants? The assumption is that my wage can buy me a decent life and that I'm doing ok. Maybe twenty years ago that was true. Today, decades of runaway house prices make that idea laughable.

Also, tax credits and housing benefit (for those in work) do nothing to address the underlying causes of income inequality and should be scrapped. Business should pay the actual cost of living of their employees. If they can't, they can't afford to have employees.

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I do not consider people who earn over £45pa to pay 40% income tax as rich.

Rich do not pay for the social state at all. There is not enough of them and they are clever to run with money anyway.

The social state is paid by people, who pay 40% income tax. Hardly even a middle class these days.

Another Left Wing lie biting the dust ...

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I do not consider people who earn over £45pa to pay 40% income tax as rich.

Rich do not pay for the social state at all. There is not enough of them and they are clever to run with money anyway.

The social state is paid by people, who pay 40% income tax. Hardly even a middle class these days.

Another Left Wing lie biting the dust ...

actually, the deficit pays a lot of it...

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