“Growing inequality in recent years has put increased pressure on fiscal policy to redistribute income. While the question of just how much redistribution the state should do, in the end, rests with national governments, the design of the policies themselves has a critical bearing on their effects on efficiency and growth. The design of these growth-friendly, efficient redistributive fiscal policies is addressed in a new IMF staff paper on fiscal policy and income inequality. This study is just the latest look by IMF staff at how inequality affects growth. A paper by IMF research staff released last month also examined this connection. Assessing the effect of tax and spending policies on efficiency, along with how they affect distributional goals, has long been a component of the IMF’s policy advice to member countries in the context of its technical assistance. In IMF lending programs, a common concern is how to design fiscal policy measures in a way that is consistent with the authorities’ distributional objectives. The paper brings together the extensive experience of the IMF across these areas.”
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