Growing (Un)equal: Fiscal Policy and Income Inequality in China and BRIC+
IMF Working Papers, March 25, 2015
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- Growing (Un)equal: Fiscal Policy and Income Inequality in China and BRIC+
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Bibliographic details
- Authors: Serhan Cevik, Carolina Correa-Caro
- Published: March 25, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475519976.001
Summary and research question
- Investigates 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.
- Uses instrumental variable techniques to address potential endogeneity.
- Tests the hypothesis of the existence of a Kuznets curve—an inverted U-shaped relationship between income inequality and economic development.
Key empirical findings
- Evidence supports the existence of a Kuznets curve in China and in the BRIC+ panel.
- In China:
- Government spending and taxation have opposing effects on income inequality.
- Government spending appears to have a worsening impact on income inequality.
- Taxation improves income distribution.
- The redistributive effect of fiscal policy in China appears stronger than in the BRIC+ panel but is not large enough to compensate for the adverse impact of other influential factors.
- For the BRIC+ panel:
- The paper identifies a Kuznets relationship and finds fiscal redistributive effects, but these effects are weaker than those estimated for China.
Methodology
- Period covered: 1980–2013.
- Econometric approach: instrumental variable techniques are used to deal with potential endogeneity.
Policy-relevant implications (as presented)
- Fiscal policy (taxation and government spending) has measurable redistributive effects; in China taxation improves distribution while government spending can worsen it.
- Even when fiscal policy produces redistribution, its effect may be insufficient to offset other drivers of rising income inequality.
Publication and metadata
- Authors: Serhan Cevik, Carolina Correa-Caro
- Date: March 25, 2015
- Series: IMF Working Papers
- Working Paper No.: 2015/068
- Issue: 068
- Volume: 2015
- Pages: 26
- DOI: https://doi.org/10.5089/9781475519976.001
- ISBN: 9781475519976
- ISSN: 1018-5941
- Subject keywords included in the source: Expenditure, Fiscal policy, Income distribution, Income inequality, National accounts, Personal income
- Additional keywords listed in the source: economic growth, fiscal policy, fiscal policy space, Gini coefficient market income, Global, government spending, household income, Income distribution, income growth, income inequality, income share, inequality in China, market income, Personal income, real GDP, tax-to-GDP ratio, WP
Source: Growing (Un)equal: Fiscal Policy and Income Inequality in China and BRIC+, IMF Working Paper No. 2015/068 (Serhan Cevik, Carolina Correa-Caro), March 25, 2015.