An working paper from the Washington-based fund, released last week, has said discussions about inequality have paid insufficient attention to regional differences.
The study outlined steps by which to determine the fiscal policies that can be used to target regional inequality.
“Policy debates have focused on nationwide inequality of income and opportunity across individuals and not on inequality between regions within a country,” the report stated.
“Regional perspectives have not featured prominently, as regional inequality has been largely seen as a natural part of economic development.”
The paper, The Great Divide: Regional Inequality and Fiscal Policy, said globalisation and the global financial crisis have brought regional inequality to the forefront.
Growing populism in recent years that has prompted a shift towards inward-looking “spatially-blind” fiscal policies applied nationwide has focused attention on the issue of regional differences.
The IMF research found that the disparity of income across regions within OECD countries has been persistent and remains large.
Adjusting for regional prices, its data indicate that on average per capita GDP in the top quartile regions in its study was 1.3 times higher than in the bottom quartile during 2010–14.
There is also significant regional variation in joblessness, with differences in unemployment rates of 5.6% on average between regions in the 90th and 10th percentiles of the study during 1990–2016.
Employment growth in “lagging” regions – those with unemployment rates above the 75th percentile in the nationwide distribution – was about one-third that of the leading regions in the period 2000–16.
Moreover, regions with low per-capita GDP levels and disposable household incomes, or higher unemployment rates, also have lower health access and education attainment.
The fund attributes rising disparity of income across regions in particular to falling labour mobility, pointing to the example of the United States where the incentives for interstate migration are estimated to have declined by as much as one third over the past decade.
While redistributive fiscal policies have helped to reduce rising income inequality nationwide, their impact has also varied significantly across regions.
The IMF paper outlines steps by which policymakers can identify whether, when, and how to use fiscal policies targeted specifically at regions in order to tackle inequality.
