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On the side effects of fiscal policy: Fiscal rules and income inequality

Author

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  • Combes, Jean-Louis
  • Debrun, Xavier
  • Minea, Alexandru
  • Sawadogo, Pegdéwendé Nestor
  • Vinturis, Cezara

Abstract

Contributing to an important literature on the side effects of fiscal policy, this paper employs a treatment effect analysis to show that fiscal rules (FR) have significant side effects on income inequality (IQ). Economically meaningful, this favorable causal direct effect is robust to many alternative specifications. Nevertheless, not all FR are alike: balanced budget and debt rules decrease IQ, contrary to expenditure rules that increase it. Finally, the effect of FR on IQ is found to be subject to heterogeneity related to various factors. Given the current upward global IQ trends, our results provide insightful evidence for governments of countries aiming at reducing IQ.

Suggested Citation

  • Combes, Jean-Louis & Debrun, Xavier & Minea, Alexandru & Sawadogo, Pegdéwendé Nestor & Vinturis, Cezara, 2025. "On the side effects of fiscal policy: Fiscal rules and income inequality," European Journal of Political Economy, Elsevier, vol. 90(PA).
    • Handle: RePEc:eee:poleco:v:90:y:2025:i:pa:s0176268024000363
    DOI: 10.1016/j.ejpoleco.2024.102534
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    Cited by:

    1. is not listed on IDEAS
    2. Antonia Lopez Villavicencio & Hugo Oriola, 2025. "National elections and sub-national electoral cycles: Do strong fiscal rules matter in Europe?," Working Papers hal-05002552, HAL.
    3. Deniz, Pinar & Stengos, Thanasis, 2025. "Heterogeneity of institutions and model uncertainty in the income inequality nexus," European Journal of Political Economy, Elsevier, vol. 87(C).
    4. Coulibaly, Yacouba, 2025. "The effects of resource-backed loans on deforestation: Evidence from developing countries," World Development, Elsevier, vol. 188(C).
    5. Dobre Elena-Gabriela & Teodorescu Dana & Ioanas Corina, 2025. "Business Performability in the Sustainable Development Imperative. Factorial Analysis on the Performance of Asset Utilizations," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 19(1), pages 2587-2600.
    6. Coulibaly, Yacouba, 2024. "Resource-backed loans and ecological efficiency of human development: Evidence from African countries," Ecological Economics, Elsevier, vol. 224(C).

    More about this item

    Keywords

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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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