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IMPACT OF GOVERNMENT SPENDING ON INCOME INEQUALITY

Renata Madzinova ()
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Renata Madzinova: Department of Economics Management and Marketing, College of International Business

Annals of Faculty of Economics, 2017, vol. 1, issue 2, 210-220

Abstract: Fiscal policy is an essential tool of government to influence the operation of the economy in the country. Despite the fact that each country faces a number of challenges that are specific just for the country, they also have common objectives. One of these is the redistribution of income through taxes and spending from the state budget. The aim of redistribution is an effort to eliminate income inequality and reduction of population at risk of poverty. Can the government through the provision of public services, transfer payments, and total government spending achieve the goals related to income inequality and poverty? Representatives of governments often point to the fact that the taxes paid can reduce income inequalities among individuals by withdrawing part of the revenue mainly of people with high incomes. These funds then directly (through transfer payments) or indirectly (in particular through public goods) are meant to help low-income residents. Through analysis of the impact of government spending on selected indicators of inequality (Gini coefficient, Misery Index and the number of people at risk of poverty), we measured the effectiveness of the use of government spending and thus the tax burden across the EU. Achieving the objectives of the Government's social policy has been measured by the correlation coefficient. Since almost all EU countries point to an equal share of government spending in GDP, government spending per capita of the country was chosen as a fundamental indicator of differentiation. Thus we can more closely scrutinize not only the effectiveness of government spending on selected indicators, but also whether the size of government spending affects correlation expenditures and selected indicators for measuring income inequality. In conclusion, we consider that not only the size of government spending, but especially the specifics of economic policy in the individual countries are more effective in the fight against poverty than the actual increase in government spending. Finding the appropriate size of government spending and tax rate, however, is not only an economic question, but often a political one.

Keywords: government spending; the Gini coefficient; Misery Index; poverty; the EU countries (search for similar items in EconPapers)
JEL-codes: E H (search for similar items in EconPapers)
Date: 2017
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