The effect of government social spending on income inequality in OECD: A panel data analysis

Abstract

Income inequality is one of the issue which is most discussed and struggled for its solution throughout the history of economics. Since the 1990s, income inequality has increased in most of the OECD (The Organisation for Economic Co-operation and Development) countries as in the whole world. Government social spending is one of the most important means of directly regulating income inequality. This study investigated the effect of goverment social spending on income inequaltiy for 21 OECD countries by analyzing Panel Data. According to the findings obtained, government social spending affect income inequality positively. Income inequality decreases when the government social spending increase. It has been proved that government social spending was more effective than education expenditures in regulating income inequality. It is also understood that unemployment and population growth affected the income inequality negatively. Besides, there is a negative relationship between openness, education expenditures, elderly population, education participation and income inequality.