Ebook Within-Country Inequality, Global Imbalances and Financial Instability
The UN Stiglitz Commission of Experts on Reforms of the International Monetary and Financial System posits that economic globalisation has produced increasing income inequality both within and between countries. Widening inequality has important consequences for the evolution and resolution of the current financial and economic crisis.
This paper draws on academic literature and documentation regarding the current debate surrounding the global financial crisis. It analyses how a combination of wealth inequality within countries and imbalances between countries has contributed to financial instability and the recent crisis. It is structured in five sections. After the introduction, the second section looks at how within country inequality and polarisation contribute to financial instability.
The third section examines the wealth inequality at the global level as a source of financial instability. The fourth section analyses the mutually reinforcing relationship between inequalities (both within and between countries) and how they perpetuate financial instability. The last section concludes and provides possible national and international policy responses to address these inequalities and consequently support a robust recovery from the crisis.
Contents
Executive summary
1. Introduction
2. Within-country inequality drives financial instability
- 2.1 Rising inequality within countries
2.2 Consequences of increasing inequality
2.3 Policies to circumvent consequences of inequality have fuelled the instability
2.4 Pro-cyclicality accelerated in more unequal society
3. Global imbalances and financial instability
- 3.1 Global imbalances
3.2 Global imbalances contributing towards financial stability
3.3 Reserve accumulation denominated in industrialised country currencies and financial instability
3.4 Capital flows in an unbalanced and unregulated global financial market
3.5 Widening imbalances constrain fiscal space to implement counter cyclical policies
4. Inequality within and between countries: Mutually reinforcing
- 4.1 Higher inequality within countries perpetuates global imbalances
4.2 Higher global imbalances contribute to within-county inequality
5. Conclusion and Recommendations
- 5.1 Conclusion
5.2 Recommendations
References
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