Government Fiscal Policies and Redistribution in Asian Countries

Abstract

This paper assesses the impact of government fiscal policies on income inequality in Asia. It discusses the role and effectiveness of redistribut ive fiscal policies and quantifies the effects of taxation and government expenditure on income distributions. Panel estimation for 150 countries with data between 1970 and 2009 confirms international empirical findings for Asia. Tax systems tend to be progressive but govern ment expenditures are a more effective tool for redistributing income. Moreover, the resul ts suggest some distinctive differential distributive effect for government expenditure on s ocial protection in Asia. Social protection spending appears to increase income inequality, whe reas it reduces it in the rest of the world. Also adversely affecting the distribution of income in Asia is government expenditure on housing. Some options for improving the effectivene ss of fiscal policies in Asia are discussed.