Larch, Martin (2010): Fiscal performance and income inequality: Are unequal societies more deficit-prone? Some cross-country evidence.
This is the latest version of this item.
Download (164Kb) | Preview
A bias towards running deficits is an entrenched feature of fiscal policy making in most developed economies. Our paper examines whether this tendency is in any way associated with the personal distribution of income of a country. It takes inspiration from theoretical work according to which distributional conflicts may give rise to deficit spending or to delayed fiscal adjustment. Although these theories have been around for years the empirical literature on the determinants of fiscal performance has so far paid little or no attention to the possible role played by different degrees of income inequality. Our results suggest that this neglect was not justified. Using cross-country data we find evidence that a more unequal distribution of income can weigh on a country's fiscal performance. These findings can be relevant in the aftermath of the post-2007 global financial and economic crisis in particular when designing fiscal exist strategies. The success and sustainability of such strategies may inter alia depend on their distributional implications.
|Item Type:||MPRA Paper|
|Original Title:||Fiscal performance and income inequality: Are unequal societies more deficit-prone? Some cross-country evidence|
|Keywords:||fiscal performance; income inequality; budget deficit|
|Subjects:||E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E62 - Fiscal Policy
D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook
|Depositing User:||Martin Larch|
|Date Deposited:||21. Jan 2011 15:53|
|Last Modified:||16. Feb 2013 01:56|
Aghion, Ph., E. Caroli and C. Garcia-Penalosa (1999) Inequality and Economic Growth: The Perspective of New Growth Theories, Journal of Economic Literature, Vol. 37, No. 4: 1615-1660.
Alesina A. and A. Drazen (1991) Why are Stabilisations Delayed? American Economic Review, Vol. 81, No. 5: 1170-1188.
Alesina, A. and R. Perotti (1995) the Political Economy of Budget Deficits, IMF Staff Papers, Vol. 42, No. 1: 1-31.
Atkinson, A. B. (1997) Bringing Income Distribution in From the Cold, The Economic Journal, Vol. 107, No. 441: 297-321.
Atkinson, A. B. and Brandolini, A. (2001). Promise and Pitfalls in the Use of "Secondary" Data-Sets: Income Inequality in OECD Countries as a Case Study, Journal of Economic Literature, Vol. 39, No. 3: 771-799.
Ballabriga, F., and C. Martinez-Mongay, C. (2002) Has EMU Shifted Policy? Economic papers of the European Commission. Directorate-General for Economic and Financial Affairs, No. 166.
Balassone, F., M. Francese and S. Zotteri (2008) Cyclical Asymmetry in Fiscal Variables, Bank of Italy Temi di Discussione (Working Paper) No. 671.
Barro, R. (1979) On the Determination of the Public Debt, Journal of Political Economy, Vol. 87. No. 5: 940-971.
Bohn, H. (1998). The Behaviour of US public Debt and Deficits, Quarterly Journal of Economics, Vol.113, No. 3: 949–63.
Buti, M. and P. van den Noord (2003) Discretionary Fiscal Policy and Elections, the Experience of the Early Years of EMU, OECD Economics Department Working Papers No. 351.
Cuckierman, A. and A. Meltzer (1989) A political Theory of Government Debt and Deficit in a Neo-Ricardian Frame-work, The American Economic Review, Vol. 79, No. 4: 713-732.
Debrun, X., L. Moulin, A. Turrini, J. Ayuso-i-Casals and M. S. Kumar (2008) Tied to the Mast? National Fiscal Rules in the European Union, Economic Policy, Vol. 23, No. 54: 297–362.
Deininger, K. and L. Squire (1996) A New Data Set Measuring Income Inequality, World Bank Economic Review, Vol. 10, No. 3: 565-591.
Dixit, A. and J. Londregan (1996) The Determinants of Success of Special Interests in Redistributive Politics, Journal of Politics, Vol. 58, No. 4: 1132-1155.
European Commission (2009) Sustainability Report—2009, European Economy, Nr. 9.
European Commission (2006). Public Finance in EMU—2006, European Economy. Reports and studies, No. 3.
Forni, L. and S. Momigliano (2004) Cyclical Sensitivity of Fiscal Policies Based on Real-Time Data, Applied Economics Quarterly, Vol. 50, No. 3: 299-326.
Galí, J. and R. Perotti (2003) Fiscal Policy and Monetary Integration in Europe, Economic Policy, Vol. 18, Issue 37: 533-572.
Girouard, N. and C. André (2005) Measuring Cyclically-Adjusted Budget Balances for OECD Countries, OECD Working Paper No. 434.
Hsieh, C. T. (1997) Bargaining over Reform, European Economic Review, Vol. 44, No. 9: 659-1676.
Manasse, P. (2006) Pro-Cyclical Fiscal Policy: Shocks, Rules, and Institutions—A View from MARS, IMF Working Paper, Nr. 06/27.
Tabellini, G. (1991) The Politics of Intergenerational Redistribution, Journal of Political Economy, Vol. 99, No. 2: 335-357.
Meltzer, A. and S. Richard (1981) A Rational Theory of the Size of Government, Journal of Political Economy, Vol. 89: 914-927.
Perotti, R. (1996) Growth, Income Distribution, and Democracy: What the Data Say, Journal of economic Growth, Vol. 1, No. 2: 149-187.
Pyatt, G. (2003). Development and the Distribution of Living Standards: A Critique of the Evolving Data Base, Review of Income and Wealth, Vol. 49, No. 3: 333-358.
Szekely, M. and M. Hilgert, (2002) Inequality in Latin America during the 1990s, in R. B. Freeman (ed.), Inequality Around the World. Basingstoke: Palgrave Macmillan.
Von Hagen, J. and I. Harden (1995) Budget Processes and Commitment to Fiscal Discipline, European Economic Review, Vol. 39, No. 3-4: 771-779.
Von Hagen, J. (1992) Budgeting Procedures and Fiscal Performance in the European Communities, European Economy, Economic Papers, No. 96.
Von Hagen, J. and J. Poterba (1999) Fiscal Institutions and Fiscal Performance, NBER and University of Chicago Press.
Available Versions of this Item
Fiscal performance and income inequality: Are unequal societies more deficit-prone? Some cross-country evidence. (deposited 26. Jun 2010 17:49)
- Fiscal performance and income inequality: Are unequal societies more deficit-prone? Some cross-country evidence. (deposited 21. Jan 2011 15:53) [Currently Displayed]