Effects of fiscal consolidation on income inequality

Narrative evidence from South America

Bibliographic Data

ID21541839
AuthorsDante Cardoso (0000-0001-6689-7234), Laura Carvalho (0000-0001-5265-5867)
Year2022
Publication date2022-07-22
Open AccessYes
TypeARTICLE
VenueEmpirical Economics (JOURNAL)
Journal identifiersISSN: 0377-7332 • E-ISSN: 1435-8921
PublisherSpringer Science and Business Media LLC (PUBLISHER)
DOI10.1007/s00181-022-02279-5
OpenAlexW3217275397
LanguageEN
Citations received2
References cited40

Based on a narrative dataset constructed by David and Leigh (2018) that covers nine South American economies in the period 1982-2017, this paper estimates dynamic effects of fiscal consolidations on income inequality from Jordá (2005)'s local projections method. Results suggest that fiscal consolidations lead to a rise in income inequality in all specifications and data panels. When decomposing fiscal shocks, spending-based fiscal consolidations appear to significantly increase the Gini index, while tax-based fiscal consolidations do not show statistically significant effects on income inequality. The rise in the Gini index for disposable income caused by a spending-based fiscal adjustment of 1% of GDP varies between 1.74 and 3.22% in five years depending on the selected data panel (country-years). The magnitude of this effect is higher than in most of the previous studies carried out for OECD countries

Development economics · Economic inequality · Economic policy · Economics · Income inequality metrics · Inequality · Labour economics · Macroeconomics · Narrative · Political science · Fiscal Policy and Economic Growth · Income, Poverty, and Inequality · Finance

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