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Joint determinants of fiscal policy, income inequality and economic growth

Listed author(s):
  • 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
Handle: RePEc:ulr:wpaper:dt-04-12
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