Income Inequality, Fiscal Decentralization and Transfer Dependency

By Caroline-Antonia Goerl, Mike Seiferling

April 16, 2014

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Format: Chicago

Caroline-Antonia Goerl, and Mike Seiferling. Income Inequality, Fiscal Decentralization and Transfer Dependency, (USA: International Monetary Fund, 2014) 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

Within the context of reigniting post crisis macroeconomic growth, income inequality has emerged as a topic of significant interest for both academics and policymakers (Bastagli, Coady, and Gupta, 2012) This study builds on past literature on fiscal decentralization suggesting that redistribution is most effectively carried out at sub-central levels of government. Using the IMF’s multi-sector Government Finance Statistics Yearbook database, this paper tests the impact of decentralized redistribution on income inequality for a globally representative sample of countries since 1980. The findings suggest that the decentralization of government expenditure can help achieve a more equal distribution of income. However, several conditions need to be fulfilled: i) the government sector needs to be sufficiently large, ii) decentralization should be comprehensive, including redistributive government spending, and, iii) decentralization on the expenditure side should be accompanied by adequate decentralization on the revenue side, such that subnational governments rely primarily on their own revenue sources as opposed to intergovernmental transfers.

Subject: Expenditure, Fiscal federalism, Fiscal policy, Income distribution, Income inequality, National accounts, Total expenditures

Keywords: Asia and Pacific, Caribbean, COFOG, Europe, Fiscal decentralization, Fiscal federalism, Government activity, Government expansion, Government finance statistics yearbook, Government redistribution, Income distribution, Income inequality, Recipient government, Sub-Saharan Africa, Total expenditures, Transfer dependency, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/064
Stock No:

WPIEA2014064
ISBN:

9781484354711
ISSN:

1018-5941

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