Trends in Income Distribution and the Influence of Fiscal Policy

Abstract

Since the fiscal reforms from the mid 90’s, the fiscal policy is less re-distributive. The generosity of the social benefits and the progressivity in taxes is less each time, especially in developed economies. The objectives have moved towards fiscal balance, the dispersion of the risks caused by the volatility of exchange rates and the macroeconomic stability. In brief: the “fiscal consolidation”, understood as the pursuit of budget equilibrium through the reduction of the tax elusion and evasion; the reduction of public expenditure destined to social welfare; preference for the use of indirect taxes and the focalization of the programs to fight poverty. Consensus establishes that fiscal policy is the main instrument to improve income distribution; however, few are the works that focus on the evaluation of how such policy can also generate greater inequality in the distribution of income and wealth. New trends in fiscal policy favoring concentration of income and wealth, the neoliberal emphasis on rational economic behavior promotes the pursuit of fiscal balance, financial stability and low inflation at the expense of social welfare and well-being. The purpose of this paper is to show how fiscal policy has diminished its redistributive effects.