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On government spending and income inequality under monopolistic competition

Author

Listed:
  • Chang, Juin-Jen
  • Guo, Jang-Ting
  • Wang, Wei-Neng

Abstract

This paper systematically examines the theoretical and quantitative interrelations between government spending and disposable income inequality in a tractable monopolistically competitive Ramsey macroeconomy. Upon an increase in government size, we analytically show that whether the long-run after-tax Gini coefficient rises or falls depends on the sign and magnitude of the wealth/capital inequality effect versus those of the adjusted-labor effect. Under (i) a mild level of productive public expenditure externalities and (ii) a sufficiently high intertemporal elasticity of consumption substitution, our calibrated model is able to generate qualitatively as well as quantitatively consistent income inequality effects of government spending vis-à-vis recent estimation results.

Suggested Citation

  • Chang, Juin-Jen & Guo, Jang-Ting & Wang, Wei-Neng, 2024. "On government spending and income inequality under monopolistic competition," Macroeconomic Dynamics, Cambridge University Press, vol. 28(6), pages 1253-1277, September.
    • Handle: RePEc:cup:macdyn:v:28:y:2024:i:6:p:1253-1277_2
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    Cited by:

    1. is not listed on IDEAS
    2. Mursit Recepoglu, 2022. "Public Expenditures, Economic Growth and Income Inequality: Empirical Evidence from the Commonwealth of Independent States," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 9(2), pages 293-314, July.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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