Samara Gunter, Daniel Riera-Crichton, Carlos Vegh, Guillermo Vuletin, 01 May 2019

Based on evidence from the industrial world, and particularly Europe, tax hikes have a significant negative effect on economic activity. The column shows that this empirical finding does not hold for a broader sample. In the developing world, higher taxes may be an effective way to raise revenues without reducing GDP. This is especially true in countries with low provision of public goods or commodity-dependent countries.

Elva Bova, Tidiane Kinda, Jaejoon Woo, 07 February 2018

Understanding the distributional consequences of fiscal adjustment measures is important for equity, but also to ensure the sustainability of the measures. This column shows that fiscal adjustments increase inequality, including through unemployment. Spending-based adjustments worsen inequality more significantly than tax-based adjustments. Progressive taxation and targeted social benefits and subsidies introduced in the context of a broader decline in spending can help offset some of the distributional impact of fiscal adjustments.

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