Use this identifier to quote or link this document: http://hdl.handle.net/2072/152015

Economic growth and inequality: the role of fiscal policies
Muinelo Gallo, Walter Leonel; Roca i Sagalés, Oriol
Universitat Autònoma de Barcelona. Departament d'Economia Aplicada
This paper analyses the impact of different instruments of fiscal policy on economic growth as well as on income inequality, using an unbalanced panel of 43 upper-middle and high income countries for the period 1972-2006. We consider and estimate two individual equations explaining growth and inequality in order to assess the incidence of different fiscal policies. Firstly, our approach considers imposing orthogonal assumptions between growth and inequality in both equations, and secondly, it allows growth to be included in the inequality equation, and inequality to be included in the growth equation. The empirical results suggest that an increase in the size of government measured through current expenditures and direct taxes diminishes economic growth while reducing inequality, being public investment the only fiscal policy that may break this trade-off between efficiency and equity, since increases in this item reduces inequality without harming output. Therefore, the results reflect that the trade-off between efficiency and equity that governments often confront when designing their fiscal policies may be avoided.
2011-06-09
Desenvolupament econòmic
Política fiscal
Anàlisi de dades de panel
Desigualtat econòmica
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Working Paper
Document de treball (Universitat Autònoma de Barcelona. Departament d'Economia Aplicada); 1105
         

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