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Income Inequality and Redistributive Government Spending

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Author Info

  • Luiz de Mello

    (OECD)

  • Erwin R. Tiongson

    (World Bank)

Abstract

This article examines empirically the question of whether more unequal societies spend more on income redistribution than their more egalitarian counterparts. Theoretical arguments on this issue are inconclusive. The political economy literature suggests that redistributive spending should be higher in more unequal societies due to median voter preferences. Alternatively, it can be argued that unequal societies may spend less, not more, on redistribution because of capital market imperfections. Based on different data sources, the cross-country evidence reported in the article supports the “imperfect markets†hypothesis, showing that more unequal societies do spend less on redistribution. The empirical analysis also takes into account the fact that the share of redistributive transfers in GDP is nonnegative.

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File URL: http://pfr.sagepub.com/content/34/3/282.abstract
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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 34 (2006)
Issue (Month): 3 (May)
Pages: 282-305

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Handle: RePEc:sae:pubfin:v:34:y:2006:i:3:p:282-305

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Related research

Keywords: inequality; redistribution; imperfect markets; Tobit estimation;

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References

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  19. repec:fth:inadeb:404 is not listed on IDEAS
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