Fiscal Reforms, Long-term Growth and Income Inequality

By Santiago Acosta Ormaechea, Takuji Komatsuzaki, Carolina Correa-Caro

June 29, 2017

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Santiago Acosta Ormaechea, Takuji Komatsuzaki, and Carolina Correa-Caro. Fiscal Reforms, Long-term Growth and Income Inequality, (USA: International Monetary Fund, 2017) accessed December 26, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We estimate the effects on growth of nine fiscal reform episodes in seven high-income countries using the Synthetic Control Method. These episodes are selected using an indicator-based approach applied to the evaluation of growth-friendly fiscal reforms during 1975-2010. We find that in reform countries the annual growth rate of real GDP was on average about 1 percentage point above their synthetic units 10 years after each respective reform. Moreover, countries which were initially less developed seemed to experience a larger growth impact after their reforms. Results are broadly robust to controlling for structural reforms on business regulation, financial market, labor market, and legal and product markets, which may also affect growth. Our findings also suggest that inequality is not affected by the growth-friendly fiscal reforms analyzed in this paper.

Subject: Fiscal policy, Income distribution, Income inequality, Macrostructural analysis, National accounts, Personal income, Structural reforms

Keywords: Chile, Country selection, Fiscal Policy, Gini coefficient, Global, Growth effect, Income, Income distribution, Income inequality, Outcome variable, Personal income, SCM approach, SCM result, Structural Reform, Structural reforms, Synthetic Control Method, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/145
Stock No:

WPIEA2017145
ISBN:

9781484303689
ISSN:

1018-5941

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