The interplay among redistributive policies, equity, and efficiency poses a nuanced challenge. While rising inequality can hinder economic growth, subsequent efforts to tame it could worsen it. Taxes and social grants intended to promote equity may have a ‘leaky bucket’ effect – efficiency loss when transferring resources from the rich to the poor, highlighting the traditional trade-off between equity and efficiency. Public investments in infrastructure and education are frequently proposed as strategies that can simultaneously enhance equity and efficiency. However, their comparative effectiveness against other redistributive measures remains to be determined. My works address this gap by using general equilibrium models to examine how various fiscal policies impact the inequality-efficiency nexus. Key findings highlight that the impact of public investment on inequality and growth is heavily influenced by the elasticity of substitution between public and private capital in production. Analysing the channels through which different fiscal policies—such as social grants and consumption, income, and capital taxes—affect equity and efficiency reveals essential distinctions relevant to informed policymaking. Income and capital taxes, as well as transfers, directly and indirectly impact inequality through income and substitution effects. On the other hand, consumption taxes primarily influence inequality through indirect substitution effects. The findings thus advocate for balanced fiscal policy approaches, such as combining social grants with consumption taxes to combat rising inequality and foster growth. Future works will expand the analysis to include the role of environmental policies on equity and efficiency trade-offs.

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