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Good fiscal policy not only promotes macroeconomic stability and growth, it is also a powerful tool for directly reducing poverty and inequality. Many governments around the world have raised and spent funds to build the assets of the poor and to directly redistribute income, successfully improving welfare and constructing more prosperous and equal societies.

Unfortunately, fiscal policy in Latin America does not have a good record of reducing poverty and inequality. Why? According to the best information available, the combination of inadequate revenues, low-quality services and poor targeting helps explain why poverty has declined so slowly and why inequality has remained extraordinarily high.

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