Fiscal Consolidation and Income Inequality

Luca Agnello () and Ricardo Sousa

No 34/2011, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: In this paper, we assess the impact of fiscal consolidation on income inequality. Using a panel of 18 industrialized countries from 1970 to 2010, we find that income inequality significantly rises both during periods of fiscal consolidation and in the aftermath of such adjustments. In addition, fiscal authority that is driven by spending cuts seems to be more detrimental for income distribution than in the case of tax hikes. Considering the linkages between banking crises and fiscal consolidation, we show that the impact on the income gap is amplified when fiscal adjustments take place after the resolution of such financial turmoils. Our results also provide support for the Kuznets relationship and corroborate the idea that trade can lead to a more unequal distribution of income.

Keywords: Fiscal consolidation; income inequality; Kuznets curve (search for similar items in EconPapers)
JEL-codes: D63 E62 E64 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-mac and nep-pbe
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Citations: View citations in EconPapers (9)

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