Social transfers and income inequality in OECD countries

d’Agostino, Giorgio, Luca Pieroni and Margherita Scarlato
Authors registered in the RePEc Author Service: Giorgio d'Agostino

Structural Change and Economic Dynamics, 2020, vol. 52, issue C, 313-327

Abstract: In this paper, we estimate the effect of social transfers on disposable income inequality for a large panel of OECD countries. We account for the potential simultaneity bias exploiting an instrumental variable derived using a theoretical model, which identifies the main driver of social transfers from the interaction between electoral systems and partisanship of coalitions winning elections. The empirical analysis shows that a 1% increase in social transfers reduces income inequality by half a percentage point. This analysis also reveals significant heterogeneous results conditional on the level of corruption and appears to be robust to different components of expenditure, alternative model specifications and falsification tests.

Keywords: Welfare policy; Social spending; Income inequality; Instrumental variable estimation (search for similar items in EconPapers)
JEL-codes: C26 H53 I38 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:streco:v:52:y:2020:i:c:p:313-327

DOI: 10.1016/j.strueco.2019.11.004

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