The impact of economic inequality on fiscal multipliers: do Central and Eastern European countries stand out?

On the sample of 12 Central and Eastern European (CEE) countries - employing a panel VAR and a regression analysis using pre-estimated fiscal multipliers derived from time-series VAR - we investigate the impact of income and wealth inequality on the size of fiscal multipliers. For robustness, we simultaneously test the aforementioned relationship using a broader sample of 47 countries. We emphasise the following findings. First, in CEE countries, fiscal incentives predominantly produce positive output effects. Second, both panel and time-series analyses reveal that higher levels of income inequality are associated with larger fiscal multipliers in both the CEE countries and the broader sample. Third, regarding wealth inequality, the findings indicate mixed results, with some evidence suggesting a potential relationship between greater wealth inequality and higher fiscal multiplier values. Finally, higher levels of public and private debt, along with lower levels of net savings, are linked to larger fiscal multipliers in CEE countries.