Productive government expenditure and its impact on income inequality: evidence from international panel data

Stephen J Turnovsky and Iñaki Erauskin ()
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Iñaki Erauskin: University of Deusto

Review of World Economics (Weltwirtschaftliches Archiv), 2022, vol. 158, issue 1, No 9, 364 pages

Abstract: Abstract This paper addresses the impact of productive government expenditure on income inequality using a dataset of 80 countries over the period of 1980–2015. It incorporates the conflicting predictions implied by alternative growth models on this issue. While the neoclassical model suggests that productive government expenditure will reduce long-run income inequality, the corresponding endogenous growth model suggests the opposite. We examine this proposition, by considering both the aggregate Gini coefficient, and the income shares of quintiles. The results obtained using the Gini coefficients provide compelling support for the contrasting impacts of government investment on income inequality, suggested by the underlying theoretical models. These findings are supported, albeit somewhat more weakly by the regressions employing the quintile data. Our general conclusion is that government investment has a mixed effect on income inequality, a conclusion consistent with previous studies.

Keywords: Productive government expenditure; GDP per capita; Inequality; Income share; Quintile (search for similar items in EconPapers)
JEL-codes: F41 F43 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10290-021-00433-2

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