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

Author/Editor:

Serhan Cevik ; Carolina Correa-Caro

Publication Date:

March 25, 2015

Electronic Access:

Free Full Text (PDF file size is 666 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 15/68

Subject:

English

Publication Date:

March 25, 2015

ISBN/ISSN:

9781475519976/1018-5941

Stock No:

WPIEA2015068

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

26

Please address any questions about this title to publications@imf.org