Growing (Un)equal: Fiscal Policy and Income Inequality in China and BRIC+

Serhan Cevik and Carolina Correa-Caro

No 2015/068, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; government spending; economic growth; real GDP; Income distribution; income inequality; fiscal policy; income share; tax-to-GDP ratio; inequality in China; household income; market income; Gini coefficient market income; fiscal policy space; income growth; Personal income; Global (search for similar items in EconPapers)
Pages: 26
Date: 2015-03-25
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Citations: View citations in EconPapers (17)

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Journal Article: Growing (un)equal: fiscal policy and income inequality in China and BRIC+ (2020)
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