IZA DP No. 8119: A Survey of the Role of Fiscal Policy in Addressing Income Inequality, Poverty Reduction and Inclusive Growth
A growing concern on widening income gap between the rich and the poor, the policy mismatch in tackling the relative poverty and income inequality have invited increasing volumes of research focusing on the nexus between equity and efficient growth. Developed countries have experienced the critical challenges and trade-off between their generous welfares provisions and economic growth. Developing countries on the other hand, especially countries in Asia are in the process of shifting their policy direction toward more inclusive growth where most members are transforming themselves from a low-income country into a middle income country (ADB, 2014). This has stimulated the need to understand causes of inequality and poverty for better formulate policies of fostering inclusive growth. Economic growth itself is an important source of welfare distribution in most developing Asian countries. Asian governments used many forms of fiscal policy to mitigate income gaps and poverty because they will substantially undermine the economic growth if left unchecked (ADB, 2014). The objective of this study is to review the previous studies, particularly literatures related with inclusive growth of advanced economies, and to offer an efficient policy options for Asian countries. Major determinant factors of growing inequality, poverty and a range of fiscal policy tools are evaluated from both country and cross-country perspectives. The initiated policy measures are based on experiences of advanced welfare economies and the lessons derived from them will be a meaningful guideline for Asian countries to achieve their goals of inclusive growth.