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Joint determinants of fiscal policy, income inequality and economic growth

  • Leonel Muinelo-Gallo

    ()

    (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)

  • Oriol Roca-Sagalés

    ()

    (Universitat Autónoma de Barcelona (España). Departament d'Economía Aplicada)

This paper analyses the relationship between income inequality and economic growth through fiscal policy. To this end, we present and estimate two systems of structural equiation with error components through which gross income inequality determines different fiscal policy outcomes, which subsequently affects the evolution of economic growth and net income inequality. The empirical results, obtained using an unbalanced panel data of 21 high-income OCDE countries during the period 1972-2006, suggest that gross income inequality is a significant determinant of fiscal policy outcomes. Additionally, the results show that distributive expenditures and direct taxes produce significant reductions in GDP growth and net income inequality reflecting the standard efficiency-equity trade-off associated to certain fiscal policy measures.

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Paper provided by Instituto de Economía - IECON in its series Documentos de Trabajo (working papers) with number 12-04.

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Length: 39 pages
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:ulr:wpaper:dt-04-12
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  13. Leonel Muinelo & Oriol Roca-Sagalés, 2011. "Economic Growth and Inequality: The Role of Fiscal Policies," Working Papers wpdea1105, Department of Applied Economics at Universitat Autonoma of Barcelona.
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  25. Mendoza, Enrique G. & Milesi-Ferretti, Gian Maria & Asea, Patrick, 1997. "On the ineffectiveness of tax policy in altering long-run growth: Harberger's superneutrality conjecture," Journal of Public Economics, Elsevier, vol. 66(1), pages 99-126, October.
  26. Persson, Torsten & Roland, Gerard & Tabellini, Guido, 1998. "Towards micropolitical foundations of public finance," European Economic Review, Elsevier, vol. 42(3-5), pages 685-694, May.
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  28. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
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