Intergovernmental Transfers and Regional Income Inequalities: An Empirical Analysis of Uruguay

Leonel Muinelo-Gallo, Adrián Rodríguez-Miranda () and Pablo Castro-Scavone ()
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Adrián Rodríguez-Miranda: Instituto de Economía de la Universidad de la República - Uruguay
Pablo Castro-Scavone: Instituto de Economía de la Universidad de la República - Uruguay
Authors registered in the RePEc Author Service: Adrián Rodríguez Miranda

Hacienda Pública Española / Review of Public Economics, 2016, vol. 219, issue 4, 9-34

Abstract: In this paper we explore the bidirectional relationship between intergovernmental transfers and regional income inequalities in Uruguay. Our study is based on the construction of a simultaneous equations model that is designed to capture the factors that jointly determine these endogenous variables, and employs a panel of departments (regions) over the period 1990-2012. The empirical results show that central government transfers to regional governments do not have a significant impact on regional income inequality levels. In fact, our estimates support the idea that regional inequalities have a significant and negative impact on the allocation to regions of intergovernmental transfers in that the richest regions receive greater transfers per capita. Intergovernmental per capita transfers also are positively determined by past public expenditure executed by regional governments, and negatively affected by the population size of the departments. These results have clear policy implications as they show that the normative scheme governing intergovernmental regional transfers in Uruguay must be revised if the objective is to give the country greater territorial cohesion.

Keywords: intergovernmental transfers; regional inequalities; panel data; simultaneous equations; Uruguay. (search for similar items in EconPapers)
JEL-codes: C33 H77 R11 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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