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Joint determinants of fiscal policy, income inequality and economic growth

Author

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  • 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)

Abstract

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.

Suggested Citation

  • Leonel Muinelo-Gallo & Oriol Roca-Sagalés, 2012. "Joint determinants of fiscal policy, income inequality and economic growth," Documentos de Trabajo (working papers) 12-04, Instituto de Economía - IECON.
    • Handle: RePEc:ulr:wpaper:dt-04-12
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    File URL: https://hdl.handle.net/20.500.12008/4220
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    More about this item

    Keywords

    Economic growth; Inequality; Fiscal policy; Panel data;
    All these keywords.

    JEL classification:

    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • D30 - Microeconomics - - Distribution - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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