Promotion of Equitable Monetary and Fiscal Policies

Benedict Clements, Sanjeev Gupta and Joao Jalles

No 2025/0368, Working Papers REM from ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa

Abstract: This paper delineates equitable fiscal and monetary policies, along with their corresponding institutional frameworks, which can be tailored to help countries fulfill the fundamental tenets of the UN's 2030 Agenda. Monetary policy should aim to keep inflation at low or moderate levels, thus avoiding the deleterious effects of high inflation on inequality. Sound governance of central bank practices includes the establishment of independence and accountability for the central bank; solid policy and operational strategies; and transparent communications. Fiscal policy is the government’s primary instrument for achieving redistribution. Emerging Market and Developing Economies (EMDEs) will need to increase revenues by reforming tax expenditures; more extensive excise taxes on goods with negative externalities; and improving the design of the income tax. On the spending side, priorities include curtailing fuel subsidies; increasing health spending to provide a basic package of universal health benefits; reallocating health outlays toward primary and preventive care; and reallocating education spending toward primary and secondary schools. Sound fiscal governance includes the implementation of fiscal responsibility laws and medium-term fiscal frameworks (MTEFs); aligning these MTEFs with Integrated National Financing Frameworks; creating Independent Fiscal Institutions, such as Fiscal Councils; implementing transparent budgetary processes; and strengthening research capacity.

Date: 2025-02
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