Further evidence of the relationship between social transfers and income inequality in OECD countries

In this paper, we have revised the estimates of the e ect of social transfers on income in- equality. We have accounted for reverse causality using an instrumental variable derived by a theoretical model, which identi es the main driver of social transfers from the interaction between electoral system and coalition or party winning the elections, and have estimated in the OECD countries that a 1% increase of the share of social transfers reduces the income in- equality by half a percentage point. This result appears to be robust to di erent components of expenditure, alternative model speci cations and falsi cation tests. Only countries with a high corruption level seems to make this empirical regularity questionable; our estimates show that bureacratic ineciencies by corruption are identi ed as responsible of the bene t lacks of social transfers on economic inequality.