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A Call for Comparative Research: Consequences of a Rising Income Inequality for State Activities


  • Neubäumer, Renate

    () (University of Koblenz-Landau)


The aim of this discussion paper is not only to activate a debate over the interrelation between rising income inequality and economic policy measures but also to initiate comparative research in several European countries and North America. It discusses the consequences of a rising income inequality and its implications for state activities and economic policy. Using a simple model it becomes evident that an increasing income inequality leads to higher government spending, as a share of Gross Domestic Product, though the state does not take over more responsibilities. It also leads to a higher tax share though rates of taxation are not increased. This forces economic politicians to act. If they want to prevent an increase of these shares in order not to fall behind in the international competition, they must accept a rising public debt and/or must move away from socially accepted value judgments about "social standards", the degree of redistribution by taxes and/or an "adequate" supply of public goods. This might result in disenchantment with politics.

Suggested Citation

  • Neubäumer, Renate, 2011. "A Call for Comparative Research: Consequences of a Rising Income Inequality for State Activities," IZA Discussion Papers 5651, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5651

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    References listed on IDEAS

    1. Zhang, Junsen & Liu, Pak-Wai & Yung, Linda, 2007. "The Cultural Revolution and returns to schooling in China: Estimates based on twins," Journal of Development Economics, Elsevier, vol. 84(2), pages 631-639, November.
    2. C. Fred Bergsten & Charles Freeman & Nicholas R. Lardy, 2009. "China's Rise: Challenges and Opportunities," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 4341.
    3. Li, Shi & Xing, Chunbing, 2010. "China's Higher Education Expansion and its Labor Market Consequences," IZA Discussion Papers 4974, Institute for the Study of Labor (IZA).
    4. Barry Naughton, 2007. "The Chinese Economy: Transitions and Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640643, January.
    5. Xin Meng & Robert G Gregory, "undated". "Impact of Interupted Education on Earnings: The Educational Cost of the Chinese Cultural revolution," Canadian International Labour Network Working Papers 40, McMaster University.
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    More about this item


    economic policy; income inequality; macroeconomic key figures; state activities;

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook

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