Front Matter

Front Matter

Benedict Clements, Ruud A. Mooij, Sanjeev Gupta, and Michael Keen
Published Date:
September 2015
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    Note to Readers

    This is an excerpt from Inequality and Fiscal Policy. The sizeable increase in income inequality experienced in advanced economies and many parts of the world since the 1990s and the severe consequences of the global economic and financial crisis have brought issues on equity and distribution to the top of the policy agenda. The book delves into this discussion by analyzing fiscal policy and its link with inequality. Fiscal policy is the government’s most powerful tool for addressing inequality. It affects household consumption directly and indirectly. An important message of the book is that growth and equity are not necessarily at odds; with the appropriate mix of policy instruments and careful policy design, countries can in many cases achieve better distributional outcomes and improve economic efficiency. Country case studies demonstrate the diversity of challenges and the diverging ways to use fiscal policy for redistribution. The analysis presented in the book builds on work by IMF economists and leading academics.

    The Table of Contents and Introduction are included in this excerpt and are taken from uncorrected page proofs. Please check quotations and attributions against the published volume.

    Inequality and Fiscal Policy

    Edited by Benedict Clements, Ruud de Mooij, Sanjeev Gupta, and Michael Keen

    ISBN: 978-1-51356-775-4

    Pub. Date: September 2015

    Formats: Digital; Print 7 x 10 in., 448 pp.

    Price: US$40.00

    For information on how to order the full version of this book, please contact:

    International Monetary Fund, IMF Publications

    P.O. Box 92780, Washington, DC 20090, U.S.A.

    Tel: (202) 623-7430 · Fax: (202) 623-7201


    Copyright © 2015 International Monetary Fund


    Benedict Clements, Ruud de Mooij, Sanjeev Gupta, and Michael Keen

    © 2015 International Monetary Fund

    Cataloging-in-Publication Data

    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.

    ISBN: 978-1-51356-775-4

    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.

    HB523.I548 2015

    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.

    978-1-51356-775-4 (hard cover)

    978-1-51353-162-5 (paper)

    978-1-51353-868-6 (PDF)

    978-1-51350-999-0 (ePub)

    978-1-51354-407-6 (Mobipocket)

    Please send orders to

    International Monetary Fund, Publication Services

    PO. Box 92780, Washington, DC 20090, U.S.A.

    Tel.: (202) 623-7430 Fax: (202) 623-7201




    • Foreword

    • Acknowledgments


    • 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


    • 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


    • 8 Fiscal Consolidation and Inequality in Advanced Economies: How Robust Is the Link?

      Davide Furceri, Joâo Tovar Jalles, and Prakash Loungani

    • 9 Fiscal Consolidation and Income Inequality

      Stefania Fabrizio and Valentina Flamini


    • 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


    • 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


    • 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

      Joâo Pedro Azevedo, Antonio C. David, and Fabiano Rodrigues Bastos

    • Contributors

    • Index


    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 macro-economic 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.

    Christine Lagarde

    Managing Director

    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.

    Benedict Clements

    Ruud de Mooij

    Sanjeev Gupta

    Michael Keen


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