Tackling rent-seeking in some product markets tends to benefit those at the lower end of the income scale, since such reforms lead to lower prices and increased consumption choices, and therefore improve the welfare and purchasing power of poorer people in particular.14 Addressing tax avoidance and evasion would also help reduce inequality. Indeed, the payoff of efforts in this area can be significant.
In 2015, EU countries lost around 12% of total expected revenues in value-added tax, partly because of tax evasion and inadequate tax collection systems.15 Still, some reforms will always have negative distributional effects, at least in the short term.16 But in these cases we can do more to reduce inequality by ensuring that flexibility is combined with security.