Clements, B., Coady, D., De Mooij, R. & Gupta, S. (2014) “Taxing, spending, and inequality – what is to be done?“, VoxEU Organisations, 15 April.
The causes and consequences of rising inequality have stirred a lively debate on appropriate policy responses. This column reviews how governments have successfully used fiscal policy to address distributive concerns. It also examines the policy alternatives that countries can pursue in order to reduce income and wealth inequality at a minimum cost to efficiency. Such policies include exploitation of property taxes, reductions in tax deductions that favour upper-income groups, investing in increasing the human capital of low-income groups, and reforming social benefits.
The causes and consequences of rising inequality have attracted considerable attention, including the recent study by Thomas Piketty (2014). This has also touched off a lively debate on the appropriate policy response to rising disparities in income and wealth (Mankiw 2013, Berg, Ostry, and Tsangarides 2014). But this is just one of the many challenges facing ministers of finance – reducing public debt ratios and raising growth are also priorities. So what’s a minister to do? In a new paper, we shed light on this issue by examining how governments have successfully used fiscal policy to address distributive concerns, including during periods of fiscal adjustment. We also examine the policy options that countries can pursue to reduce inequality at a minimum cost to economic efficiency. These policy tools can provide finance ministers with credible options for reducing inequality without crippling economic growth.
- Atkinson, T. & Morelli, S. (2014) “The Chartbook of Economic Inequality“, VoxEU Organisation, 26 March.
- International Monetary Fund (2014) “Fiscal Policy and Income Inequality“, IMF Policy Paper, 23 January.
- Ostry, J., Berg, A. Tsangarides, C. (2014) “Redistribution, inequality, and the sustainable growth: Reconsidering the evidence”, VoxEU Organisation, 06 March.