the Southern African Development Community, SADC; and
the Association of Southeast Asian Nations, ASEAN).- National transfers: There is untapped capacity to fund more
equitable policies even in the poorest countries. This may
require moving away from orthodox approaches. Main options
to increase fiscal space to ramp up equitable spending include:
improved taxation, reprioritization of expenditures, external
financing and debt relief, domestic borrowing, adopting a more
accommodating macroeconomic framework (e.g. tolerating
some inflation and/or fiscal deficit), fighting illicit financial
flows or use of reserves for national development.- Impacts of the Global Economic Crisis and the Need for a
Recovery for All
A global financial and economic crisis quickly swept across the
world beginning in 2007. While comprehensive data are not yet
available to evaluate the aggregate impacts on income inequality,
many factors suggest that inequality may be increasing dramatically.
Above all, historical analyses show that financial crises often deepen
poverty and worsen income inequalities (Baldacci et al. 2002). In
general terms, as a financial crisis causes a country’s average income
to decline, a more-than-proportional fall in the income share of the
lowest income quintiles of the population leads to higher income
inequality, which is worsened if coupled with an increase in the
income share of the richest quintile. While this largely reflects the
lopsided impact of changes in labour demand, inflation and public
spending on the bottom quintiles over the short term (Lustig and
Walton 1999), there are also longer-term effects on the capabilities
of the poorest as a result of household coping mechanisms related
to children and expenditures on essential food, health and
education (Mendoza 2008). In aggregate poverty terms, Cline (2002)
estimated a seven percent increase in the average poverty headcount
of a developing country due to a financial crisis. The distributional
impacts of financial crises are accordingly uneven, with inequality
often worsening and adding further pressure to poverty levels
(Ravallion 2008). Given the current trends in employment, food
and fuel prices, as well as in government spending, it is predictable
that income inequality will increase during 2011.