Income inequality and fiscal policy

Working and discussion papers
September 2012
Francesca Bastagli, David Coady and Sanjeev Gupta

Income inequality has increased in most high-income and many developing economies over recent decades. Even more striking is the large variation in average disposable (post-tax-and-transfer) income inequality across countries, much of which can be accounted for by differences in the level and progressiveness of tax and spending policies.

This paper reviews the evolution of income inequality over recent decades in low, middle and high-income countries and discusses how fiscal policy has influenced these outcomes. The paper assembles a comprehensive database on disposable (post-tax-and-transfer) income inequality for 22 advanced and 128 developing economies. It then analyses the redistributive impact of fiscal policy and discusses the policy options for how this can be enhanced.