This article was first published by the Center for Global Development (CGD).
Global inequality is increasing, posing risks to economic stability, social cohesion, and long-term growth. While the rapid development of emerging markets has narrowed income gaps between countries, disparities within nations continue to widen. The COVID-19 pandemic exacerbated these inequalities, straining public finances and limiting governments’ ability to respond to crises. With more low-income countries facing debt distress and economic shocks becoming more frequent, a crucial question arises: how can fiscal and monetary policies be reformed to promote inclusive and sustainable growth?
At the request of the UN Committee of Experts on Public Administration (CEPA)—which advises member states on strengthening governance and public administration to achieve the Sustainable Development Goals (SDGs) under the 2030 Agenda—we have prepared a guidance note on promoting equitable fiscal and monetary policies. This note, expected to be released to member countries soon, outlines key policy recommendations. This blog post summarizes our main findings.
The role of fiscal and monetary policies in reducing inequality
Governments have two primary macroeconomic tools for shaping economic outcomes: fiscal policy (taxation and public spending) and monetary policy (money supply and interest rates). While fiscal policy is widely recognized as the main driver of redistribution, monetary policy also plays an important role. However, policies in several emerging and low-income developing economies (EMDEs) have often fallen short in delivering equitable outcomes.
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