- Benedict Clements, Ruud Mooij, Sanjeev Gupta, and Michael Keen
- Published Date:
- September 2015
This collection of articles adds greatly to our understanding of the link between economic performance and inequality, combining theory, econometrics, and case studies, and looking at both taxes and expenditures. The questions are investigated in a huge range of circumstances—both developed and developing countries, at the national and subnational levels. The IMF recognizes that its policies can have huge distributive consequences and so this book will be important not only for guiding its own work, but for scholars and policymakers seeking to further enhance our understanding of the determinants of inequality and devising policies that might reduce it.
—Joseph E. Stiglitz
Professor, Columbia University
This volume constitutes a definitive reference for serious students concerned with the redistributive role of the state, particularly in developing countries. Careful technical analyses back new ideas, especially on the tax side, for progressivity with minimal or no trade-off with revenue and growth: the unexploited relevance of income and property compared to indirect taxes, the centrality of such “administrative” issues as tax compliance, the still-minor role of wealth taxes, the risk of bilateral tax treaties for low-income countries. Nor are the authors naïve about the politics. Another terrific IMF contribution on how to tackle inequality within and across countries. I hope IMF operational staff pay heed.
President and Co-Founder, Center for Global Development
In this engaging collection, leading experts address the distributional effects of an array of fiscal instruments. The revenue chapters span income, consumption, and property taxation, while the spending chapters tackle means-tested and contributory cash transfers, as well as expenditures on health and education. The authors consider the effects of fiscal policies in countries at diverse levels of economic development, and over a period of decades, with keen attention paid to recent rounds of fiscal consolidation. This vividly detailed yet accessible volume fills a void in the inequality literature, and promises to prompt lively debate about the consequences of fiscal policy.
—Janet C. Gornick
Director, Luxembourg Income Study (LIS) Cross-National Data Center, Luxembourg, and Professor, Graduate Center, City University of New York
INEQUALITY and FISCAL POLICY
Benedict Clements, Ruud de Mooij, Sanjeev Gupta, and Michael Keen
© 2015 International Monetary Fund
Joint Bank-Fund Library
Inequality and fiscal policy / edited by Benedict Clements, Ruud de Mooij, Sanjeev Gupta, and Michael Keen. – Washington, D.C.: International Monetary Fund, 2015.
pages ; cm
Includes bibliographical references and index.
1. Income distribution. 2. Fiscal policy. 3. Asia – Economic conditions. I. Clements, Benedict J. II. Mooij, Ruud A. de. III. Gupta, Sanjeev. IV. Keen, Michael. V. International Monetary Fund.
The views expressed in this book are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Please send orders to
International Monetary Fund, Publication Services
P.O. Box 92780, Washington, DC 20090, U.S.A.
Tel.: (202) 623-7430 Fax: (202) 623-7201
- PART I | TRENDS IN INCOME INEQUALITY AND THE REDISTRIBUTIVE ROLE OF FISCAL POLICY
- 1 | Fiscal Policy and Income Inequality: An Overview
- Benedict Clements, Ruud de Mooij, Maura Francese, Sanjeev Gupta, and Michael Keen
- 2 | The IMF and Income Distribution
- Benedict Clements, Vitor Gaspar, Sanjeev Gupta, and Tidiane Kinda
- 3 | Inequality and Fiscal Redistribution in Advanced Economies
- David Coady, Ruud de Mooij, and Baoping Shang
- 4 | Fiscal Redistribution in Developing Countries: Overview of Policy Issues and Options
- Francesca Bastagli, David Coady, and Sanjeev Gupta
- 5 | Poverty and Distribution: Thirty Years Ago and Now
- Ravi Kanbur
- PART II | ALTERNATIVE MEASURES OF INEQUALITY AND THEIR IMPLICATIONS FOR FISCAL POLICY
- 6 | Functional Income Distribution and Its Role in Explaining Inequality
- Maura Francese and Carlos Mulas-Granados
- 7 | The Wealth of Nations: Stylized Facts and Options for Taxation
- Luc Eyraud
- PART III | FISCAL CONSOLIDATION AND INCOME INEQUALITY
- 8 | Fiscal Consolidation and Inequality in Advanced Economies: How Robust Is the Link?
- Davide Furceri, João Tovar Jalles, and Prakash Loungani
- 9 | Fiscal Consolidation and Income Inequality
- Stefania Fabrizio and Valentina Flamini
- PART IV | TAX POLICY AND INEQUALITY
- 10 | International Corporate Tax Spillovers and Redistributive Policies in Developing Countries
- Ruud de Mooij, Thornton Matheson, and Roberto Schatan
- 11 | Taxing Immovable Property: Revenue Potential and Implementation Challenges
- John Norregaard
- 12 | Targeting and Indirect Tax Design
- Michael Keen
- 13 | Carbon Tax Burdens on Low-Income Households: A Reason for Delaying Climate Policy?
- Ian Parry
- PART V | EXPENDITURE POLICY AND INEQUALITY
- 14 | The Unequal Benefits of Fuel Subsidies Revisited: Evidence for Developing Countries
- David Coady, Valentina Flamini, and Louis Sears
- 15 | Equity Considerations in the Design of Public Pension Systems
- Benedict Clements, Csaba Feher, and Sanjeev Gupta
- 16 | The Redistributive Impact of Government Spending on Education and Health: Evidence from Thirteen Developing Countries in the Commitment to Equity Project
- Nora Lustig
- 17 | Income Inequality, Fiscal Decentralization, and Transfer Dependency
- Caroline-Antonia Hummel and Mike Seiferling
- PART VI | COUNTRY CASE STUDIES
- 18 | Reinventing the Dutch Tax-Benefit System: Exploring the Frontier of the Equity-Efficiency Trade-Off
- Ruud de Mooij
- 19 | Growing (Un)equal: Fiscal Policy and Income Inequality in China and BRIC+
- Serhan Cevik and Carolina Correa-Caro
- 20 | The Quest for the Holy Grail: Efficient and Equitable Fiscal Consolidation in India
- Chadi Abdallah, David Coady, Sanjeev Gupta, and Emine Hanedar
- 21 | A Path to Equitable Fiscal Consolidation in the Republic of Congo
- Maximilien Queyranne, Dalia Hakura, and Cameron McLoughlin
- 22 | Fiscal Adjustment and Income Inequality in Brazilian States
- João Pedro Azevedo, Antonio C. David, and Fabiano Rodrigues Bastos
Excessive income inequality in many parts of the world is one of the defining issues of our time. Not only is extreme income inequality a moral and political issue, but it has important macroeconomic implications. There is growing evidence that excessive income inequality is detrimental to macroeconomic stability and economic growth.
I strongly believe that economic growth should be more inclusive and therefore more sustainable. This means improving the design of government tax and spending policies; enhancing financial inclusion, so that the poor have access to credit and financial markets; and promoting transparency and good governance, so that the doors of opportunity are open to all.
The topic of excessive inequality is relevant for the IMF in all three of its core activities—lending to support macroeconomic adjustment programs; macroeconomic surveillance, including related policy analysis; and technical assistance to build capacity, especially on government taxation and spending.
Fiscal policy is the government’s most powerful tool to achieve distributional objectives. Tax and spending policies must be designed wisely to minimize any adverse effects on incentives to work, save, and invest. On the revenue side, this implies building wider, more reliable tax bases by reducing exemptions, combating tax evasion, and strengthening administration. On the expenditure side, priorities include expanding access to education and health—which will bolster equality of opportunity—and better targeting of social benefits to the poor.
I hope this book will assist policymakers in designing more equitable fiscal policies that will help generate more equitable growth.
IMF advice has been mindful of the social impact of economic policies. Social spending floors are a key feature of programs supported under the IMF Extended Credit Facility for low-income countries. Measures to protect the most vulnerable have featured in IMF-supported programs with high-income members, including in the euro area. We are also addressing equity and social issues in our regular country-level economic surveillance, whenever they are macro-critical.
This book is designed to help further integrate income inequality issues into the IMF’s policy advice. I hope it will also spark further debate and research on this topic both inside and outside the IMF.
International Monetary Fund
This book has been a collective endeavor and has benefited from contributions from both inside and outside the IMF. We would like to thank the contributing authors for their close collaboration and enthusiasm for the topic. The research presented here has benefited from the comments of staff in the IMF’s Fiscal Affairs Department and other departments. Several chapters have also benefited from valuable comments presented at seminars hosted by other institutions.
Michael Harrup of the IMF’s Communications Department efficiently managed all aspects related to the production of the book, and we are grateful for his excellent work. We also thank Muriel Jolivert and staff in the Expenditure Policy Division of the IMF’s Fiscal Affairs Department for their valuable support. We are especially grateful to Maura Francese for her thoughtful analytical contributions and skillful organization of the many steps needed to bring a book to completion.
Ruud de Mooij