Posted

March 28, 2015 01:57:12 PM

Date

2015-03

Author

Serhan Cevik and Carolina Correa-Caro

Affiliation

Fiscal Affairs Department, IMF

Title

Growing (Un)equal: Fiscal Policy and Income Inequality in China and BRIC+

Summary /
Abstract

This paper investigates the empirical characteristics of income inequality in China and a panel of BRIC+ countries over the period 1980–2013, with a focus on the redistributive contribution of fiscal policy. Using instrumental variable techniques to deal with potential endogeneity, we find evidence supporting the hypothesis of the existence of a Kuznets curve—an inverted Ushaped relationship between income inequality and economic development—in China and the panel of BRIC+ countries. In the case of China, the empirical results indicate that government spending and taxation have opposing effects on income inequality. While government spending appears to have a worsening impact, taxation improves income distribution. Even though the redistributive effect of fiscal policy in China appears to be stronger than what we identify in the BRIC+ panel, it is not large enough to compensate for the adverse impact of other influential factors.

Keywords

Income distribution, income inequality, fiscal policy

URL

http://www.imf.org/external/pubs/ft/wp/2015/wp1568.pdf

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