Interpretation: Fiscal redistribution requires taxation and transfer of income from high-income households to low-income households
Coady and Le 20 David Coady works at the IMF’s Fiscal Affairs Department as a social spending expert. Nghia-Piotr Le, MPP, is an expert at the IMF. “Designing Fiscal Redistribution: The Role of Universal and Targeted Transfers.” IMF eLibrary. https://www.elibrary.imf.org/view/journals/001/2020/105/article-A001-en.xml //AKA
Although increasing income inequality has been observed in many countries, the varying experiences across countries, with inequality even decreasing in a sizeable share of countries, suggests that public policy and institutions play and important role in determining such outcomes.2 In this respect, fiscal redistribution (i.e., the transfer of income from higher to lower income households via tax and transfer schemes) has a key role to play in addressing income inequality. For instance, evidence from studies of fiscal redistribution shows that over three-quarters of the difference in average disposable income inequality between advanced and Latin American countries (with the lowest and highest average disposable income inequality, respectively) is accounted for by differences in the extent of fiscal redistribution rather than by differences in market incomes (Bastagli, Coady and Gupta, 2015).