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Can fiscal rules curb income inequality? Evidence from developing countries

Jean-Louis Combes (), Alexandru Minea (), Pegdewende Sawadogo and Cezara Vinturis
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Jean-Louis Combes: CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique
Cezara Vinturis: CERDI - Centre d'Études et de Recherches sur le Développement International - Clermont Auvergne - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique, UVT - West University of Timisoara [Roumanie]

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Abstract: Despite a large literature linking fiscal policy and income inequality (IQ), the relationship between fiscal rules (FR) and IQ is severely underexplored. In a large panel of developing countries, propensity score matching estimations reveal that countries that adopted FR experience a significant decrease in their IQ with respect to countries that did not. Economically meaningful, this favorable effect is robust to a wide set of alternative measurement, methodology, and modeling specifications. Moreover, we unveil significant differences among FR: balanced budget and debt rules robustly decrease IQ, contrary to expenditure rules that increase it. Finally, the effect of FR on IQ is subject to heterogeneity related to structural factors. Given the current global IQ trends, our results showing that the FR are not neutral for IQ may provide insightful evidence for governments of countries aiming at adopting FR.

Keywords: Fiscal rules; Income inequality; Developing countries; Impact analysis (search for similar items in EconPapers)
Date: 2019-12-23
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-02423126
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