Globalization, public finance, and poverty
Global economic forces might impact poverty in any number of direct ways by reducing prices, providing access to larger pools of capital, or creating and destroying jobs. Such forces might also work indirectly, that is, through their effect on labor standards, unionization rates, or the development of labor-saving technology. For countries with greater fiscal capacity, there is a growing tension between any potential desire for progressivity and the need to compete for footloose capital. To the extent the latter results in reliance on regressive tax expenditures, globalization is likely to worsen the relative position of the poor. Together, these points emphasize data challenges inherent to establishing a causal relationship between globalization and poverty. Taking incidence seriously has important analytical implications for understanding the political engagement by the poor in developed and developing democracies. The government should replace broad and probably insupportable claims on the effect of globalization on pro-poor tax and expenditure policies with more careful analyses of the actual incidence of fiscal policy.
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