Fiscal performance and income inequality: Are unequal societies more deficit-prone? Some cross-count

Martin Larch

No 414, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: Summary for non-specialistsA bias towards running deficits is an entrenched feature of fiscal policy making in most developed economies.Our paper examines whether this tendency is in any way associated with the personal distribution of income of a country. It takes inspiration from theoretical work according to which distributional conflicts may give rise to deficit spending or to delayed fiscal adjustment. Although these theories have been around for years the empirical literature on the determinants of fiscal performance has so far paid little or no attention to the possible role played by different degrees of income inequality.Our results suggest that this neglect was not justified. Using cross-country data we find evidence that a more unequal distribution of income can weigh on a country's fiscal performance. These findings can be relevant in the aftermath of the post-2007 global financial and economic crisis in particular when designing fiscal exist strategies. The success and sustainability of such strategies may inter alia depend on their distributional implications.

Keywords: Income; distribution; fiscal; performance; Gini; coefficient; panel; regression; Larch; BEPA (search for similar items in EconPapers)
JEL-codes: D31 E6 E62 G23 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2010-06
New Economics Papers: this item is included in nep-cba and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://ec.europa.eu/economy_finance/publications/ ... 10/pdf/ecp414_en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0414

Access Statistics for this paper

More papers in European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission Contact information at EDIRC.
Bibliographic data for series maintained by ECFIN INFO ().