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Federalism and primary-income inequality

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  • Kangoh Lee

Abstract

The paper studies the effects of federalism on primary-income (before taxes and transfers) inequality. A jurisdiction in a federal system chooses an economic policy for the interests of the jurisdiction, but the policy is determined uniformly at the national level in a unitary system. A jurisdiction with more resources can choose a higher level of public inputs such as productivity-enhancing investment and hence attract more businesses in a federal system, but a jurisdiction in a unitary system cannot. More business activities result in higher incomes, and income inequality is higher in a federal system than in a unitary system. The paper also provides an empirical analysis, and available evidence suggests that primary-income inequality is higher in a federal system.

Suggested Citation

  • Kangoh Lee, 2022. "Federalism and primary-income inequality," Applied Economics, Taylor & Francis Journals, vol. 54(54), pages 6303-6321, November.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:54:p:6303-6321
    DOI: 10.1080/00036846.2022.2083568
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