Should-Read: Vitor Gaspar and Mercedes Garcia-Escribano: Inequality: Fiscal Policy Can Make the Difference

Should-Read: Vitor Gaspar and Mercedes Garcia-Escribano: Inequality: Fiscal Policy Can Make the Difference: “Income inequality among people around the world has been declining in recent decades…

…[with] countries like China and India’s incomes catching-up to advanced economies. But… inequality within countries has increased, particularly in advanced economies…. Policymakers [now] have a window of opportunity to respond with reforms that tackle inequality, and our new Fiscal Monitor shows how the right mix of fiscal policies can make the difference. In advanced economies, fiscal policy offsets about a third of income inequality before taxes and transfers—commonly known as market income inequality—with 75 percent coming from transfers. Spending on education and health also affects market income inequality over time by promoting social mobility, including across generations. In developing economies, fiscal redistribution is much weaker, given lower and less progressive taxes and spending…