The Great Divide: Regional Inequality and Fiscal Policy
IMF Working Papers, May 2, 2019
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- The Great Divide: Regional Inequality and Fiscal Policy
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Bibliographic details
- Authors: William Gbohoui, Waikei R Lam, Victor Duarte Lledo
- Published: May 2, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498311625.001
Key findings and stylized facts
- Growing regional inequality within countries has raised the perception that “some places and people” are left behind.
- Regional disparity in per-capita GDP is large (even after adjusting for regional price differences), persistent, and widening over time.
- Rising nationwide income inequality is associated with:
- rising within-region income inequality, and
- widening average income across regions.
- Declining incentives for interregional labor mobility are related to the rise in inequality; incentives for poor households in lagging regions are estimated to reduce by as much as one-third in the United States.
- The analysis is based on novel stylized facts on regional inequality for OECD countries.
Mechanisms and channels
- Interregional labor mobility:
- Reduced incentives to move across regions, especially among poor households in lagging regions, amplify regional divergence.
- Income distribution dynamics:
- Nationwide income inequality increases through both within-region inequality and between-region (average income) divergence.
- Price adjustments:
- Regional disparity remains large even after adjusting for regional price differences.
Fiscal policy framework and recommendations
- The paper proposes a framework to identify whether, how and by whom fiscal policies can be used to tackle regional inequality.
- Conditions under which fiscal policies should be spatially-targeted are outlined.
- Spatial targeting can be complementary to conventional means-testing methods in mitigating income inequality.
- Policy design should consider:
- the persistence and magnitude of regional per-capita GDP disparities,
- interactions between national redistribution and spatially-targeted measures,
- incentives affecting interregional labor mobility, particularly for poor households in lagging regions.
Publication and metadata
- Authors: William Gbohoui, Waikei Raphael Lam, Victor Duarte Lledo
- Date: May 2, 2019
- Series: IMF Working Papers
- Working Paper No.: 2019/088
- Issue: 088
- Pages: 41
- Volume: 2019
- DOI: https://doi.org/10.5089/9781498311625.001
- ISBN: 9781498311625
- ISSN: 1018-5941
- Subjects: Fiscal redistribution, Income distribution, Income inequality, Labor, Labor mobility, National accounts, Personal income
- Keywords: country per-capita GDP level, destination region, fiscal redistribution, Gini coefficient, Global, government finance, household income, Income distribution, Income inequality, income level, intergovernmental relations, Labor mobility, lagging region, mobility, OECD country, OECD Regional Database, Personal income, price difference, regional inequality, transfer program, WP
Source: "The Great Divide: Regional Inequality and Fiscal Policy", William Gbohoui, Waikei Raphael Lam, and Victor Duarte Lledo, IMF Working Papers 2019, 088 (May 2, 2019), DOI: https://doi.org/10.5089/9781498311625.001
Content in this bundle
- wpiea2019088 - Section IV illustrates an exercise on how spatial considerations can be complementary to current