Spreading the Wealth

François Bourguignon

Fiscal instruments can reduce inequality, but some yield short-term results while others bear fruit over the long term

After years of quasi-neglect, economic inequality has taken center stage in the policy debate worldwide. In advanced economies, the apparent impact of globalization and technological change and the cost of counteracting these forces is raising concern. In developing economies, where inequality is higher, the issue is whether it poses a major obstacle to raising growth and reducing poverty. In both cases, the redistribution of income might achieve not only greater equality but also faster growth and, for developing economies, faster poverty reduction.

In countries where growth is satisfactory but benefits the poor much less than the non-poor, there obviously is a strong case for shifting resources from those at the top of the income scale to those at the bottom. Giving poor children access to better education and paying for it by taxing the affluent is one way to reduce inequality while also fostering future growth and poverty reduction. Redistributive policies could also help narrow the gap between rich and poor in countries with high inequality, where social and political tensions or the rise of populist regimes might prove bad for growth in the long run.

Knowing that a more equal distribution of resources may be good for development is one thing; having the right instruments to implement it is another. These instruments—from progressive taxation, cash transfers, and investment in human capital to regulation and inclusive growth strategies—do exist. But they are vastly underused in developing economies.

Straight income redistribution

Taxation and income transfers to the poorest segment of society are the most direct way to keep inequality in check and reduce poverty in the short term. These instruments are particularly appropriate when the benefits of growth fail to reach the poor. But most of the time they are too small to really make a difference. On average, taxes on personal income and cash benefits to the poor are almost 10 times lower, as a proportion of GDP, than in advanced economies.

The success of conditional cash transfer programs has demonstrated that it is possible to transfer cash efficiently to poor people in developing economies. These cash transfer programs give money to households on the condition that they comply with certain pre-defined requirements, such as up-to-date vaccinations or regular school attendance by children. The spread of such initiatives as Mexico’s Prospera (previously Progresa), or Brazil’s Bolsa Família from Latin America to other developing regions—as well as the results of several pilots in poorer sub-Saharan African countries—shows the progress made in the last 15 years or so in the field of redistribution. New methods of means testing and cash distribution have made it possible (see “Reaching Poor People” in the December 2017 F&D).

Such programs should continue to improve in the future, thanks to advances in information technology, particularly the use of mobile money. But their current impact on poverty and inequality is limited. Their main weakness is their size, which amounts to 0.5 percent of GDP at most in middle-income countries. In poorer countries, they are still at the pilot stage.

Expanding those programs requires more resources. A higher and more effective income tax in the upper part of the income scale could help raise the necessary funds. In this respect, the generalized use of bank accounts, credit cards, and debit cards by higher-income people in most countries should make it easier to monitor personal incomes and reduce tax evasion. Political economy issues aside, this should lead developing economies’ governments to place more emphasis on direct taxation than they presently do.

Developing economies tend to rely relatively more than advanced economies on the indirect taxation of domestic and imported goods and services. Indirect taxes are said to be regressive because they tax consumption rather than income, and wealthier people save a higher proportion of their income. But in addition, indirect taxation in developing economies may even increase poverty depending on the structure of tax rates and the consumption basket of households at various rungs of the income scale (Higgins and Lustig 2016). In any case, lowering taxes on goods such as food that weigh more in the budget of poor people achieves relatively little redistribution because wealthier people also consume these goods, perhaps as a lower proportion of their budget but possibly in larger quantity. The same argument applies to subsidies for purchases of basic goods like bread or fuel. Income transfers are preferable to subsidies because they cost less and are better targeted to the truly needy, as evidenced by the pilot experiments on the replacement of food subsidies by “direct benefit transfers” in some Indian states (Muralidharan, Niehaus, and Sukhtankar 2017).

There is therefore a strong case for the expansion of redistribution in developing economies when growth is satisfactory but poverty reduction is slow. There are political obstacles to doing so, however, as well as challenges related to the country’s administrative capacity. Political opposition may well remain, but modern information technology is likely to improve administrative capacity.

Increasing opportunities

Income redistribution will lower poverty by reducing inequality, if done properly. But it may not accelerate growth in any major way, except perhaps by reducing social tensions arising from inequality and allowing poor people to devote more resources to human and physical asset accumulation. Directly investing in opportunities for poor people is essential. Transfers to the poor should not consist merely of cash; they should also boost people’s capacity to generate income, today and in the future. Education and training as well as access to health care, micro-credit, water, energy, and transportation are powerful instruments. Social assistance is critical to prevent people from falling into poverty traps when adverse shocks hit. Programs such as India’s Mahatma Gandhi National Rural Employment Guarantee, in which the state acts as the employer of last resort, do precisely that.

Conditional cash transfers have been shown to motivate families to send their children to school, improve their nutrition, and monitor their health. But facilities to meet this additional demand must be made available and must be financed. The same is true of other programs focusing on improving opportunities for the poor. Financing these programs through progressive taxation while providing cash transfer incentives to poor households thus reduces inequality and poverty in the short term and helps these households generate more income over the medium and long term.

Is such a strategy of static and dynamic income equalization immune to the efficiency cost of redistribution? In other words, do these taxes and transfers take away the incentives for people to work, save, and become entrepreneurs? Given the limited scope of redistribution in developing economies, it is unlikely that it would have much effect on economic incentives. Substantial income tax progressivity may indeed be achieved with marginal tax rates much below those in advanced economies, where redistribution is not considered to be an obstacle to growth (Lindert 2004). Also, replacing distortionary indirect taxes or subsidies with income transfers should improve efficiency. Moreover, conditional cash transfers appear to have no significant negative effect on labor supply; they may even encourage entrepreneurship (Bianchi and Boba 2013).

Strategies that promote greater equality and stronger growth rely on raising resources in a progressive way and spending them on programs that benefit the poorest segment of the population in this generation or the next one. Other policies that do not rely on redistribution may achieve the same goals. Before contemplating redistribution, however, governments ought to consider enhancing the pro-poor nature or inclusiveness of their growth strategies, in particular through fostering employment for unskilled workers.

Other policies besides straight redistribution are also available. Minimum wage laws—although controversial in advanced economies because of their potentially negative effects on employment when the minimum is set too high—generate more equality in the distribution of earnings. In developing economies, such policies may actually increase labor productivity by improving the physical condition of workers, as predicted by the efficiency wage theory. Part of the drop in inequality observed in Brazil at the turn of the century just as growth was accelerating has been partly attributed to the significant increase in the minimum wage (Komatsu and Filho 2016).

Anti-discrimination laws can also promote equality and foster growth by improving work and training incentives for minority groups. And anti-corruption strategies, by reducing rent seeking, are probably the best candidates for both enhancing growth and income equality, even if the inequality arising from corruption is often difficult to observe.

Governments can draw on an array of policies to foster growth by reducing inequality and ensuring that growth reduces poverty. The policies they adopt will depend on the relative importance of these two objectives and the time horizon over which they can be expected to deliver results. Pure income redistribution policies generate less future growth than those policies that expand the economic opportunities of poor people—but they reduce poverty immediately. They also alleviate social tensions and may thus free growth constraints in the case of excessive inequality. On the other hand, policies that enhance opportunities for the poor do less to reduce inequality today, essentially through taxation, but result in faster growth, less poverty, and greater equality tomorrow.

It is up to governments to choose their preferred policy combination. The choice is difficult because some parties will necessarily lose in the short run and might not make up for this loss anytime soon. Yet instruments are available today that would benefit all in the long run, through faster growth, more rapid poverty reduction, and less inequality. It would be a serious mistake not to make use of them.

FRANÇOIS BOURGUIGNON is a professor emeritus at the Paris School of Economics. He was the World Bank’s chief economist from 2003 to 2007.


Bianchi, M., and M. Boba, 2013, “Liquidity, Risk, and Occupational Choices.” Review of Economic Studies, 80 (2): 491–511.

Higgins, Sean, and Nora Lustig. 2016. “Can a Poverty-Reducing and Progressive Tax and Transfer System Hurt the Poor?” Journal of Development Economics 122: 63-75.

Komatsu, B. Kawaoka, and N. Menezes Filho. 2016. “Does the Rise of the Minimum Wage Explain the Fall of Wage Inequality in Brazil?” Policy Paper 16, INSPER, São Paulo.

Lindert, P. 2004. Growing Public. Cambridge, United Kingdom: Cambridge University Press.

Muralidharan, K., Paul Niehaus, and Sandip Sukhtankar. 2017. “Direct Benefit Transfers in Food: Results from One Year of Process Monitoring in Union Territories.” UC San Diego.


Russia falters in Ukraine but unlikely to give up assault

Russia falters in Ukraine but unlikely to give up assault



Associated Press/Rodrigo AbdUkrainian army soldiers take part in a military sweep to search for possible remnants of Russian troops after their withdrawal from villages in the outskirts of Kyiv, Ukraine, Friday, April 1, 2022. (AP Photo/Rodrigo Abd)

The Biden administration is framing Russian President Vladimir Putin’s invasion of Ukraine as a “strategic blunder” as Moscow’s assault enters its second month.

U.S. officials say Putin’s top aides are shielding the Russian leader from Moscow’s military losses, even as Russian forces shift some of their resources away from Ukraine’s capital city, Kyiv.

Some analysts believe the shift is a tacit acknowledgement that Russia cannot take and hold Kyiv as Putin had hoped.

But the administration is carefully stopping short of predicting an all-out Russian defeat.

Leaders in the U.S. and Ukraine are warning Russia is likely repositioning forces that have moved away from Kyiv to other areas of Ukraine, likely to focus its military might on taking full control of the eastern Donbas region. 

Ukrainian President Volodymyr Zelensky, in a speech delivered after midnight on Friday in Kyiv, echoed the view of Russia’s military faltering, but warned against declaring victory. 

“The expulsion of the occupiers continues. But we must also realize that for the Russian military, this is part of their tactics,” he said in a video message.

“We know that they are moving away from the areas where we are beating them to focus on others that are very important, on those where it can be difficult for us,” he added.

Meanwhile, Ukrainian and Russian officials continue efforts to advance peace talks in Istanbul, though the discussions have yet to yield any breakthroughs.

Oleksiy Goncharenko, a member of Ukraine’s parliament, told The Hill by phone from Kyiv he is not optimistic about the talks but that “we need to try, and we are trying to find some solutions, that is the situation.”

He called for more military and humanitarian assistance and warned that Russia’s war is likely to continue for months. 

“In reality, certainly nobody knows, but what I am telling people, please be ready for a long war,” he said. “It’s better to be prepared for [the] worst, and if it will finish quicker, we will be happy. But better to be prepared for the worst, that it can last for months and months.”  

The U.S. and allies are working to maintain deliveries of key weapons and military assistance to Ukraine, ratcheting up sanctions on Russia, and executing contingency plans to offset impacts on the American and allied economies. 

The administration declassified new intelligence saying Putin is being misled by his advisers over the failures in Ukraine. It paints a portrait of a leader increasingly isolated and lashing out in desperation.

President Biden told reporters offhand on Thursday that Putin may have put advisers under “house arrest,” a remark White House press secretary Jen Psaki said was based on public reports. 

“This war is not going how President Putin had planned,” Psaki said. “This intention of winning a quick war, defeating the Ukrainians quickly is not how it has played out.” 

Retired Lt. Gen. Ben Hodges, former commanding general of the U.S. Army Europe, told The Hill that Russia had failed in its original plan and is shifting strategy. 

“They no longer have the ability to conduct sustained land operations towards Odessa, towards Kyiv, anywhere towards west,” Hodges said. 

“They’re going back to where they have most of their advantages, and I think they are going to try to continue grinding Mariupol and try to solidify what they have,” he added.

At the same time, Hodges argued that the U.S. needs to give the Ukrainians everything they need to push the Russians back to the territory they were in before the full invasion on Feb. 24 — meaning better air defense capability. Without it, the war could grind on much longer, he said. 

“I think it’s up to us how much longer this goes on,” he said. 

Goncharenko echoed that the country needs air defenses.

“That is our priority, number one, to defend our skies,” he said, calling for delivery of Soviet-era fighter jets from Poland and for countries in Eastern Europe to provide the Russian-made S300 missile defense system. 

“Our officers and crew know what to do with them,” he added.

The U.S. announced $1 billion in additional military assistance to Ukraine in recent weeks, including Switchblade drones, which act as a discreet, remote-controlled missile. 

Pentagon press secretary John Kirby told reporters this week that about half a dozen shipments had already arrived in Ukraine that included Javelin anti-tank missile systems and Stinger air defense systems. 

Psaki said Friday that more than $350 million in U.S. assistance to Ukraine has been delivered in the past few weeks. She also confirmed the U.S. is supplying the Ukrainians with equipment to protect against any Russian chemical or biological attacks. 

But even as Russian forces retreat from Kyiv and reposition, Putin is not signaling defeat.

The Russian president reportedly ordered up 135,000 military conscripts, is preparing to send hundreds of Syrian mercenaries to Ukraine and has threatened to cut off Russian gas deliveries to Europe if not paid in rubles. 

Ukrainians are digging in, fortifying the territories under their control and retaking cities and towns where Russians are leaving.

“I think Ukrainians can hold on for a very long time — but that of course is not the same thing as the Ukrainians being able to successfully counterattack on a very large scale,” said Anatol Lieven, senior research fellow on Russia and Europe at the Quincy Institute for Responsible Statecraft. “The Ukrainians have proved they sometimes can, but we’re not sure.”

Lieven added that it’s clear Putin’s army has suffered great losses in the war so far but that any exit from the conflict is likely to rely on the Russian leader looking to portray some element of victory. 

“Once the Russians have taken, if they can, what Putin regards as politically essential, I think there is a pretty strong incentive for Russia to stop and seek a peace deal,” he said.  

Russian negotiators have said very little publicly about Moscow’s position in the peace talks, while the Ukrainians have offered key concessions and areas of negotiation — including status as a neutral state, albeit with international security guarantees.

While Ukrainians have called for Russian troops to pull back to their positions before the invasion — that includes their occupation of the eastern territories of the Donbas and the Crimean Peninsula — they have offered the final status of those territories to be part of discussions. 

“I do see Zelensky quietly preparing the population for concessions,” said Vladislav Davidzon, a senior fellow with the Atlantic Council who has traveled between Ukraine and Europe over the past month and is at the border with Poland. 

“At this point it’s going to be very difficult for him to get certain things agreed upon by the population and certain things he’s not in control of — so it will be an odd situation where Ukrainians will have to get the population on board and have to press the West to step down on certain sanctions.” 

Gabrielle Rifkind, director of the Oxford Process, an organization focused on peacemaking efforts at the leadership level, said the international community needs to be vigilant in encouraging difficult compromises between Putin and the Ukrainians. Native American tribe reacquires hundreds of acres in VirginiaDemocrats fractured on response to end of Title 42

“To resolve conflict, you have to engage with all parties. And not only do you have to engage. You have to imagine how they’re thinking. … You have to write their victory speeches,” she said in remarks during a panel discussion hosted by the Quincy Institute on Tuesday.

But Davidzon echoed the view that the war is likely to drag out, with more devastation.

“It is going to be a protracted conflict, and the Russians, in order to not have a total defeat from their standpoint, there’s going to be a very dirty, long-term fight over the Donbas,” he said. “I’m very sorry about that. But the state is going to survive and Kyiv is going to stand.” TAGS BIDEN JEN PSAKI JOE BIDEN RUSSIA RUSSIA-UKRAINE WAR RUSSIAN INVASION RUSSIAN INVASION OF UKRAINE UKRAINE UKRAINE INVASION UKRAINE WAR VLADIMIR PUTIN VOLODYMYR ZELENSKY

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