Reallocating Public Spending to Reduce Income Inequality: Can It Work?
IMF Working Papers, September 6, 2019
Source details
- Canonical URL
- Reallocating Public Spending to Reduce Income Inequality: Can It Work?
Other formats
Bibliographic details
- Authors: Djeneba Doumbia, Tidiane Kinda
- Published: September 6, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513511863.001
Key question and scope
- Can a government reduce income inequality by changing the composition of public spending while keeping the total level of expenditure fixed?
- Empirical scope: newly assembled data on spending composition for 83 countries across all income groups.
- Paper format: IMF Working Paper, 51 pages, Working Paper No. 2019/188.
Main empirical findings
- Reallocating spending toward social protection and infrastructure is associated with reduced income inequality.
- The association is particularly strong when the reallocation is financed through cuts in defense spending.
- No evidence that lowering defense spending to finance infrastructure and social outlays improves income distribution in countries with weak institutions and at higher risk of conflict.
- Reallocating social protection and infrastructure spending towards other types of spending tends to increase income inequality.
- Accounting for the long-term impact of health spending, and particularly education spending, helps to better capture the equalizing effects of these expenditures.
Policy implications and recommendations
- Prioritize reallocations toward social protection and infrastructure to reduce income inequality, conditional on institutional and security contexts.
- When feasible and appropriate given security and institutional considerations, consider financing pro-equality reallocation through defense spending reductions.
- Exercise caution in weak-institution, high-conflict environments: defense cuts to finance social and infrastructure outlays do not necessarily yield improvements in income distribution in these settings.
- Incorporate long-term returns to health and education spending when evaluating the distributional impact of public expenditure reallocations.
Contextual application
- The paper includes a discussion of implications for Indonesia, described as a major emerging market where income inequality is central to policy debates.
Subject and keywords (as provided)
- Subject: Defense spending, Education spending, Expenditure, Health care spending, Income distribution, Income inequality, National accounts
- Keywords: Asia and Pacific, Defense spending, Defense spendingAotal spending, Education spending, expenditure category, expenditure t-1, Global, Health care spending, income inequality, Income inequality, income share, inequality data, infrastructure t-1, market income, net Gini coefficient, public spending policy, remained flat, wealth Gini Index, WP
Djeneba Doumbia and Tidiane Kinda, "Reallocating Public Spending to Reduce Income Inequality: Can It Work?", IMF Working Papers 2019, 188 (2019); DOI: https://doi.org/10.5089/9781513511863.001.
Content in this bundle
- Working Paper