Can Fiscal Policy Mitigate Income Inequality and Poverty?

Abstract

This paper provides fresh evidence on the distributional effects of fiscal policy using data on a panel of OECD economies spanning the last four decades. We evaluate how four alternative measures of income inequality and poverty respond to several stock and flow variables accounting for fiscal actions. We find that increases in government debt and expenditure promote a less unequal distribution of income. We detect a significant distributional impact of education and social spending, as well as of government consumption expenditure. We also investigate potential redistributive implications of large fiscal expansion and consolidation episodes, without finding any evidence of additional effects besides those associated with the above mentioned fiscal variables.