Redistribution, automatic stabilizers and public debt

Fiscal policies in advanced economies have become less redistributive over the last two decades, as the steady reductions in tax progressivity and insurance against unemployment risk illustrate. This shift towards less redistribution has coincided with a broad-based reduction in fiscal policy countercyclicality, particularly in expansions. Periods of rising incomes have therefore not translated into equally rising government revenues, thereby accelerating the pace of public debt accumulation. Simulations show that the reduction in fiscal redistribution could have contributed up to 7 percentage points of GDP of additional public debt over the last two decades.