Fiscal redistribution and the narrowing urban–rural income gap

Abstract

This paper explores the regional impacts of heterogeneous fiscal redistribution policies on urbanrural income gaps. We construct market income and final income measures and use quantile regressions to estimate the impact across income deciles and across urban and rural areas of the different fiscal redistribution systems that operate regionally in Spain. To do that, we combine microdata from the Living Conditions Survey and Household Budget Survey for the 2017–2020 period. The results show that there is a 6 % urbanrural income gap for market income and that redistribution reduces it to 4 % for final income. Individuals in the lower deciles are more affected by the urbanrural income gap before and after fiscal interventions. There is large heterogeneity in the size of this income gap across regions and in their capacity to address it. Our results highlight the redistributive capacity of fiscal policies for narrowing the urban-rural income gap.