Policy Brief
Fiscal Policy for Poverty Reduction, Reconstruction, and Growth

Growth, poverty reduction, and social peace are all undermined when public expenditure management and taxation are weak and when the fiscal deficit and public debt are not managed successfully. And large-scale aid and debt relief cannot work without a good fiscal system. The macroeconomic frameworks of many poor countries are improving, but fiscal policy’s full potential will not be realized until good and accountable expenditure and taxation systems are built. Good fiscal policy can raise economic growth through well-chosen public investments provided that the spending is large enough. Growth itself increases the tax base generating the potential for higher public spending on poverty reduction. Fiscal reform can be a tool for peace when an unfair distribution of spending and taxation generates grievances that turn violent. Overall, fiscal policy reveals more about the political priorities underpinning a country’s development strategy than any other area of policymaking.