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Inequality Convergence and Distribution Neutral Fiscal Policy

Author

Listed:
  • Sugata Marjit
  • Amlan Majumder
  • Sandip Sarkar
  • Lei Yang

Abstract

We provide an interesting empirical evidence dealing with the cross country data on equality i.e. movements of Gini coefficient over last four decades. This seems to suggest a robust empirical evidence that the growth or change in inequality across nations has a negative relation with initial degree of inequality. This would imply that poorer nations starting with higher degree of inequality experience weaker growth in inequality, exhibiting some sort of convergence in the inequality generating process. With this evidence as the backdrop we then provide an analytical framework where countries make an effort to neutralize the distributional impact with taxes and transfers that might distort incentives. We prove, under fairly general conditions, that ceteris paribus, lower initial inequality makes it tougher for a country to contain further inequality. Thus cross country inequality is likely to exhibit a converging process.

Suggested Citation

  • Sugata Marjit & Amlan Majumder & Sandip Sarkar & Lei Yang, 2020. "Inequality Convergence and Distribution Neutral Fiscal Policy," CESifo Working Paper Series 8119, CESifo.
  • Handle: RePEc:ces:ceswps:_8119
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp8119_0.pdf
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    References listed on IDEAS

    as
    1. Sanjeev Gupta & Sugata Marjit & Sandip Sarkar, 2018. "An Application of Distribution-Neutral Fiscal Policy," IMF Working Papers 2018/012, International Monetary Fund.
    2. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    3. Deininger, K & Squire, L, 1996. "Measuring Income Inequality : A New Data-Base," Papers 537, Harvard - Institute for International Development.
    4. Guanghua Wan & Peter J. Morgan & Robert J. Barro, 2016. "Economic Growth and Convergence, Applied to China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 24(5), pages 5-19, September.
    5. Robert J. Barro, 2016. "Economic Growth and Convergence, Applied Especially to China," NBER Working Papers 21872, National Bureau of Economic Research, Inc.
    6. Dixit, Avinash & Norman, Victor, 1986. "Gains from trade without lump-sum compensation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 111-122, August.
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    Cited by:

    1. Sugata Marjit & Anjan Mukherji & Sandip Sarkar, 2018. "Pareto Efficiency, Inequality and Distribution Neutral Fiscal Policy - An Overview," Discussion Papers Series 590, School of Economics, University of Queensland, Australia.
    2. Moses K. Tule & Taiwo Ajilore & Augustine Ujunwa, 2019. "Monetary Policy Contagion in the West African Monetary Zone," Foreign Trade Review, , vol. 54(4), pages 375-398, November.

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    More about this item

    Keywords

    inequality; distribution-neutral; fiscal policy;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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