The Role of Taxation as a Redistributive Instrument in Reducing Economic Inequality and Promoting Inclusive Growth

Abstract

Economic inequality and income disparity represent complex phenomena closely linked to taxation policy and economic growth. High levels of income inequality can hinder economic expansion by reducing social stability and weakening investment incentives, while non-inclusive economic growth further deepens income disparities. Taxation functions as a fundamental instrument for wealth redistribution and macroeconomic stabilization; however, its effectiveness depends on taxpayer compliance, fiscal transparency, and the perceived fairness of the tax system. This study employs a library research approach by analyzing various empirical studies concerning the relationship between taxation and economic inequality. The findings indicate that a progressive tax system can effectively reduce income inequality, yet poorly designed tax policies may exacerbate socio-economic disparities. Therefore, tax reforms oriented toward equity and inclusive development are essential to achieving sustainable and balanced economic growth. Strengthening fiscal institutions, promoting accountability, and ensuring justice in tax administration are pivotal to realizing taxation’s role as a driver of social welfare and long-term development