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Policy Reform and Income Distribution

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  • Giovanni Andrea Cornia

Abstract

The paper analyses the relationship between within-country income inequality and policies of domestic liberalization and external globalization. The models used to provide the rationale for such reforms—such as the Hecksher-Ohlin model—usually predict a decline in inequality. However, the evidence shows that inequality often rose with the introduction of such reforms. The paper tries to explain this discrepancy by identifying the conditions under which the models’ conclusions do not hold. Indeed, such models are based on a simplified view of reality and restrictive assumptions, and their predictions do not necessarily hold in conditions of institutional weakness, structural rigidities, inefficient markets, asymmetric information and persistent protectionism.

Suggested Citation

  • Giovanni Andrea Cornia, 2005. "Policy Reform and Income Distribution," Working Papers 3, United Nations, Department of Economics and Social Affairs.
  • Handle: RePEc:une:wpaper:3
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    File URL: http://www.un.org/esa/desa/papers/2005/wp3_2005.pdf
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    References listed on IDEAS

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    1. Atkinson, A.B., 2000. "Increased Income Inequality in OECD Countries and the Redistributive Impact of the Government Budget," Research Paper 202, World Institute for Development Economics Research.
    2. repec:fth:michin:446 is not listed on IDEAS
    3. James A. Levinsohn & Steven T. Berry & Jed Friedman, 2003. "Impacts of the Indonesian Economic Crisis.Price Changes and the Poor," NBER Chapters,in: Managing Currency Crises in Emerging Markets, pages 393-428 National Bureau of Economic Research, Inc.
    4. François Bourguignon & Christian Morrisson, 2002. "Inequality Among World Citizens: 1820-1992," American Economic Review, American Economic Association, vol. 92(4), pages 727-744, September.
    5. Bourguignon, F. & Morrisson, C., 1990. "Income distribution, development and foreign trade : A cross-sectional analysis," European Economic Review, Elsevier, vol. 34(6), pages 1113-1132, September.
    6. Feenstra, Robert C. & Hanson, Gordon H., 1997. "Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras," Journal of International Economics, Elsevier, vol. 42(3-4), pages 371-393, May.
    7. Taylor, L., 2000. "External Liberalization, Economic Performance, and Distribution in Latin America and Elsewhere," Research Paper 215, World Institute for Development Economics Research.
    8. Ke-young Chu & Hamid R Davoodi & Sanjeev Gupta, 2000. "Income Distribution and Tax and Government Social Spending Policies in Developing Countries," IMF Working Papers 00/62, International Monetary Fund.
    9. Li, Hongyi & Squire, Lyn & Zou, Heng-fu, 1998. "Explaining International and Intertemporal Variations in Income Inequality," Economic Journal, Royal Economic Society, vol. 108(446), pages 26-43, January.
    10. Chu, K.-y. & Davoodi, H. & Gupta, S., 2000. "Income Distribution and Tax, and Government Social Spending Policies in Developing Countries," Research Paper 214, World Institute for Development Economics Research.
    11. Savvides, Andreas, 1998. "Trade policy and income inequality: new evidence," Economics Letters, Elsevier, vol. 61(3), pages 365-372, December.
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    Citations

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    Cited by:

    1. Isabel Ortiz & Matthew Cummins, 2011. "Global Inequality: Beyond the Bottom Billion – A Rapid Review of Income Distribution in 141 Countries," Working papers 1102, UNICEF,Division of Policy and Strategy.
    2. Bruno Martorano & Marco Sanfilippo, 2015. "Structural Change and Wage Inequality in the Manufacturing Sector: Long Run Evidence from East Asia," Oxford Development Studies, Taylor & Francis Journals, vol. 43(2), pages 212-231, June.
    3. Meltem Ucal & Alfred Albert Haug & Mehmet Hüseyin Bilgin, 2016. "Income inequality and FDI: evidence with Turkish data," Applied Economics, Taylor & Francis Journals, vol. 48(11), pages 1030-1045, March.
    4. Adams, Samuel & Atsu, Francis, 2015. "Assessing the distributional effects of regulation in developing countries," Journal of Policy Modeling, Elsevier, vol. 37(5), pages 713-725.
    5. Cornia, Giovanni Andrea & Martorano, Bruno, 2011. "A New Fiscal Pact, Tax Policy Changes and Income Inequality," WIDER Working Paper Series 070, World Institute for Development Economic Research (UNU-WIDER).

    More about this item

    Keywords

    trends in income inequality; factor income distribution; policy reform; structural adjustment; globalization;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • F02 - International Economics - - General - - - International Economic Order and Integration

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