Growing (Un)equal: Fiscal Policy and Income Inequality in China and BRIC+

March 25, 2015

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Serhan Cevik, and Carolina Correa-Caro. Growing (Un)equal: Fiscal Policy and Income Inequality in China and BRIC+, (USA: International Monetary Fund, 2015) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper investigates the empirical characteristics of income inequality in China and a panel of BRIC+ countries over the period 1980–2013, with a focus on the redistributive contribution of fiscal policy. Using instrumental variable techniques to deal with potential endogeneity, we find evidence supporting the hypothesis of the existence of a Kuznets curve—an inverted Ushaped relationship between income inequality and economic development—in China and the panel of BRIC+ countries. In the case of China, the empirical results indicate that government spending and taxation have opposing effects on income inequality. While government spending appears to have a worsening impact, taxation improves income distribution. Even though the redistributive effect of fiscal policy in China appears to be stronger than what we identify in the BRIC+ panel, it is not large enough to compensate for the adverse impact of other influential factors.

Subject: Expenditure, Fiscal policy, Income distribution, Income inequality, National accounts, Personal income

Keywords: Economic growth, Fiscal policy, Fiscal policy space, Gini coefficient market income, Global, Government spending, Household income, Income distribution, Income growth, Income inequality, Income share, Inequality in China, Market income, Personal income, Real GDP, Tax-to-GDP ratio, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/068
Stock No:

WPIEA2015068
ISBN:

9781475519976
ISSN:

1018-5941

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