Abstract
Advanced economies have a significantly longer history of using fiscal policy to tackle inequality and promote inclusive growth than those in developing Asia. Therefore, as developing Asia explores the more active use of fiscal policy for inclusive purposes, it can learn from the experiences of advanced countries. Those experiences clearly suggest that fiscal policy can have a significant effect on inequality which provides some cause for optimism about its equity-promoting potential. Nevertheless, that optimism should be tempered by the different circumstances of advanced versus developing economies along with the need for developing Asia to maintain fiscal sustainability and economic growth.
Highlights
Advanced economies have a much longer history of using fiscal policy to promote inclusive growth than those in developing Asia
They generally accord a higher priority to the quality of growth, critically including income equality as opposed to narrowly defined economic growth, i.e., the citizens of high-income countries typically have a stronger preference for redistributing income to achieve a more equitable income distribution than the citizens of low-income countries
Notwithstanding the larger size of the government and the higher priority accorded to income redistribution in advanced economies, at least some of their experience with using fiscal policy for equity-promoting purposes is relevant for developing Asia
Summary
Notwithstanding the larger size of the government and the higher priority accorded to income redistribution in advanced economies, at least some of their experience with using fiscal policy for equity-promoting purposes is relevant for developing Asia. All, their experience can help inform and guide Asian policymakers as to whether fiscal policy can reduce inequality and promote inclusive growth. While we must be careful to take into account the large differences between the two groups, the experience of the advanced economies can still inform and guide Asian policymakers Those lessons are all the more valuable at this point because the governments of developing Asia are beginning to recognize the potential of fiscal policy as a powerful tool for fostering more inclusive growth.
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