Income and wealth redistribution

Fiscal Policy and Redistribution of Income and Wealth :

In developed countries inequalities of income and wealth, while still substantial have narrowed down. This has been possible by a combination of increases in productivity and redistributive government.

The case do developing countries is quite different. There is worsening poverty with increasing GNP. Traditionally, fiscal policy has been considered to take care of income redistribution. For this purpose it is considered as "the most effective and least disruptive instrument of the state for bringing about distribution." The fiscal redistribution is brought about in two ways. The first instrument is progressive income taxes which take relatively larger shares from the rich than from the poor.The other is the expenditure programmes which transfer income to the poor through various measures.

Now, increasing doubt is expressed about the efficacy of the fiscal system as a weapon of social justice. It is now being realized that fiscal systems of developing countries have failed to redistribute income in favour of the poor. On the contrary, it has accentuated the inequality and the short term effect of economic growth on income distribution may cause greater inequality.