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April 08, 2021

Tax the wealthy to help shrink inequality caused by Covid-19, IMF recommends

Tax the wealthy to help shrink inequality caused by Covid-19, IMF recommends

The latest International Monetary Fund fiscal report suggests that temporarily increasing taxes on wealth or high incomes could help reduce inequality, caused by Covid-19. It added that those worst affected by the pandemic would feel a sense of cohesion but it also urged governments to “carefully assess trade-offs”. “To help meet pandemic-related financing needs, policymakers could consider a temporary Covid-19 recovery contribution, levied on high incomes or wealth,” it said.

Wealth taxation usually applies to the assets owned by taxpayers, which can be property or investments, but its use has declined in recent decades. Last year the Wealth Tax Commission in the UK discovered that a one-off wealth tax at a rate of 5% over £500,000 per individual would raise £260bn in the UK. It, however, warned that annual wealth tax would be harder to introduce as those who are more affluent could change their behavior in order to avoid paying more tax.

Vitor Gaspar, director of the IMF's fiscal affairs department, noted that Covid-19 has had a snowball effect on inequality. "Pre-existing inequalities have amplified the adverse impact of the pandemic. And, in turn, Covid-19 has aggravated inequalities. A vicious cycle of inequality could morph into a social and political seismic crack," he warned. IMF’s report also found that young and poor people suffered the most during the pandemic, as they were at a greater risk of losing their jobs or incomes.

IZA World of Labor contributors Manuela Angelucci and Daniel Bennett consulted the evidence and, similarly, found that “while the Covid-19 pandemic has disrupted all our lives, the ramifications for health and economic security have been greater for some people than for others. The pandemic has been worse for women, racial and ethnic minorities, and workers without college degrees. In addition, Covid-19 has caused disproportionate employment and health losses for workers whose jobs cannot be conducted remotely (e.g. working from home),” they write in their opinion piece.

Read Manuela Angelucci and Daniel Bennett’s opinion piece All in this together?: Inequality during Covid-19

Find more IZA World of Labor coronavirus content on our curated topics pages: National responses to Covid-19 and Covid-19—Pandemics and the labor market.