Growing (Un)equal: Fiscal Policy and Income Inequality in China and BRIC+
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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. 2015/068
Subject:
Expenditure Fiscal policy Income distribution Income inequality National accounts Personal income
English
Publication Date:
March 25, 2015
ISBN/ISSN:
9781475519976/1018-5941
Stock No:
WPIEA2015068
Pages:
26
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