Absolute Poverty and Sound Public Finance in the Eurozone

Rosaria Rita Canale,Giorgio Liotti

doi:10.1007/s10888-021-09498-3

Rosaria Rita Canale, Giorgio Liotti

Open Access

https://doi.org/10.1007/s10888-021-09498-3

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Abstract

The respect of fiscal parameters is supposed to be – according to the official position of the European institutions – the best recipe for granting stability and growth. This optimistic view appears to be in contrast with the recent increase in poverty. The aim of this paper is to individuate the existence of a relation between governments’ decisions about fiscal policy and absolute poverty in 19 Eurozone countries from 2005 to 2017. The attempt is to answer the question as to whether the effect on growth generated by fiscal policy measures can account for the objective of poverty alleviation. The results support the conclusion that absolute poverty increases in the presence of a restrictive fiscal policy, while it decreases in the opposite case. During declining macroeconomic conditions, national governments belonging to the Eurozone appear to be unable to reconcile the objective of sound public finance with that of poverty alleviation.

Highlights

Inequality in advanced economies is at centre stage of economists’ recent debates
Trade openness and material deprivation are connected with a positive relation β3 = −0.126 showing that an increase of exports could have been gained at expenses of a reduction of wages and/or greater imports decrease internal demand and growth
Sound public finance is at the core of the European policy framework

Summary

Introduction

Inequality in advanced economies is at centre stage of economists’ recent debates. This issue is not a matter related to normative values of economic policy and to social justice but rather to the proper functioning of the economic system. In the Eurozone, such an issue is becoming ever more relevant due to the inability of single countries to tackle inequalities for a number of relevant reasons: 1) the need to respect fiscal parameters; 2) the reduced rate of growth and 3) the need to compete in a globalized market. Recent political events both in western and eastern countries suggest that income inequality boosts Euroscepticism, especially among the lower-educated, and that it threatens the construction of a single and integrated geographical area (Kuhn et al 2016)

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