The Great Divide: Regional Inequality and Fiscal Policy

By William Gbohoui, Waikei R Lam, Victor Duarte Lledo

May 2, 2019

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William Gbohoui, Waikei R Lam, and Victor Duarte Lledo. The Great Divide: Regional Inequality and Fiscal Policy, (USA: International Monetary Fund, 2019) accessed September 19, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Growing regional inequality within countries has raised the perception that “some places and people” are left behind. This has prompted a shift toward inward-looking policies and away from pro-growth reforms. This paper presents novel stylized facts on regional inequality for OECD countries. It shows that regional disparity in per-capita GDP is large (even after adjusting for regional price differences), persistent, and widening over time. The paper also finds that rising nationwide income inequality is associated with both rising within-region income inequality and widening average income across regions. The rise in inequality is related to declining incentives for interregional labor mobility, especially for poor households in lagging regions, which are estimated to reduce by as much as one-third in the United States. Against these facts, the paper proposes a framework to identify whether, how and by whom fiscal policies can be used to tackle regional inequality. It outlines conditions under which those policies should be spatially-targeted and illustrates how they can be complementary to conventional means-testing methods in mitigating income inequality.

Subject: 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

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/088
Stock No:

WPIEA2019088
ISBN:

9781498311625
ISSN:

1018-5941

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