A Systematic Literature Review on the Impact of Monetary and Fiscal Policies on Income Inequality in India

Abstract

This article examines the relationship between progressive income tax systems and income inequality, analyzing data from 1981 to 2025 across numerous countries. While progressive taxation reduces observed income inequality, its impact on actual inequality (measured by consumption-based GINIs) is significantly less. The study reveals that the effect of tax progressivity on inequality is more pronounced in nations with weaker legal frameworks and that changes in top and bottom tax rates have varying effects. The research further explores the implications of these findings for flat tax regimes. It then shifts focus to India, highlighting the poor human development indices in states like Bihar and Uttar Pradesh. The article investigates regional disparities in India, focusing on macroeconomic factors, infrastructure, agriculture, industry, and human development. These disparities stem from factors such as occupational structure, historical infrastructure development, funding limitations, and access to education and training. While initiatives exist to address these imbalances, they have limitations, and greater efforts are needed for balanced regional development.