Spreading the Wealth

Author:François Bourguignon
Pages:22-24
SUMMARY

Fiscal instruments can reduce inequality, but some yield short-term results while others bear fruit over the long term

 
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Fiscal instruments can reduce inequality,
but some yield short-term results while
others bear fruit over the long term
François Bourguignon
ART: ISTOCK / TOPP_YIMGRIMM
After years of quasi-neglect, ec onomic
inequality ha s taken center stage in the
policy debate worldwide. In advanced
economies, the apparent impact of glo-
balization and tech nological chang e and the cost
of counteracting these forces i s raising concern. In
developing economies, where inequality is h igher,
the issue is whether it poses a major obstacle to
raising growt h and reducing poverty. In both cases,
the redistribution of income might achieve not
only greater equality but al so faster growth a nd,
for developing economies, faster poverty reduct ion.
In countries where growth is satisfactory but ben-
efits the poor much less than the non-poor, there
obviously is a strong case for shifting resources from
those at the top of the income scale to those at
the bottom. Giving poor children access to better
education and paying for it by taxing the affluent
is one way to reduce inequality while also fostering
future growth and poverty reduction. Redistributive
policies could also help narrow the gap between rich
and poor in countries with high inequality, where
social and political tensions or the rise of populist
regimes might prove bad for growth in the long run.
Knowing that a more equal distribution of resources
may be good for development is one thing; having
the right instruments to implement it is another.
ese instruments—from progressive taxation, cash
transfers, and investment in human capital to regu-
lation and inclusive growth strategies—do exist. But
they are vastly underused in developing economies.
Straight income redistribution
Taxation and income transfers to the poorest s egment
of society are the most direc t way to keep inequality
in check and reduce poverty in t he short term. ese
instruments are pa rticularly appropriate when the
benefits of growth fail to reach the poor. But most
Spreading the Wealth
22 FINANCE & DEVELOPMENT | March 2018

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