Fiscal Redistribution Research Articles

Fiscal redistribution and the narrowing urban–rural income gap

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.

Abstract and embodied: the political economy of the French Revolution

Abstract The political economy of the French Revolution struggled to reconcile the promises of economic abstraction and the challenges of embodying wealth. In their attempts to realize these dual aims, revolutionaries drew not only on Enlightenment ideas about laissez-faire but also on an economic theology of money and consumption with roots in alchemy and the Catholic sacrament of the Eucharist. Both strains of thought had radicalizing effects. Proponents of laissez-faire cast society as a self-regulating field of reciprocal exchanges, thereby obviating the need for fiscal redistribution and frustrating those demanding social welfare and manufacturing subsidies. When the anticipated prosperity of laissez-faire failed to materialize, revolutionaries put their hopes in the new paper currency, the assignat, believing that it would generate wealth ad infinitum and circulate it justly. Breaking with laissez-faire but still committed to economic theology, radicals such as Jacques Roux and Maximilien Robespierre joined the Parisian popular movement in justifying government oversight to ensure the satisfaction of an ever-expanding panoply of needs. Whereas historians now tend to explain the Terror as the outcome of ideological, psychological and institutional contingencies, the fate of laissez-faire suggests that political radicalization was intimately linked to revolutionaries’ abstract economic principles and beliefs.

Power of the weak? Framing strategies in fiscal redistribution negotiations

ABSTRACT In fiscal redistribution negotiations, fiscally weaker sub-units aim to secure more funding but are disempowered by their dependency and lack of bargaining chips. What kind of negotiation strategies do fiscally weak actors rely on to maximize their bargaining positions in redistributive negotiations? The article puts forward a novel strategy of discursive framing whereby relatively powerless actors can reach successful agreements. Two strategies of framing, communitarian and coercive, are observed inductively through a comparative case study analysis of two instances of sub-federal redistribution negotiations in Canada. The findings reveal that ‘more is not always better’: more publicity and aggression can backfire, while communitarian strategies grounded in normative argumentation can prove effective despite their non-confrontational nature. Even a mixed communitarian-coercive strategy can prove effective given that sub-units remain consistent with their initial objectives and apply pressure incrementally. The lessons learned from these Canadian cases have broader implications for studying the dynamics of redistributive negotiations globally.

Income composition inequality of Chinese residents and fiscal redistribution effect: An empirical analysis on individual income tax and transfer system.

Based on the data of China Family Panel Studies (CFPS), this paper decomposed Chinese residents' income into labor income and capital income by income source, and measured the income inequality and income composition inequality of Chinese residents during 2010-2018. We take the Gini coefficient as a measure of inequality and, by decomposing it by income source, analyze the absolute and relative marginal effects of capital income and labor income on the overall income inequality. On this basis, this paper discusses the redistributive effect of financial instruments such as personal income tax and transfer payment on income inequality and income composition inequality. The results show that capital income is not only the main driving factor for the increase of overall income inequality, but also its influence on inequality is gradually increasing. The results of the redistribution effect of fiscal instruments show that although individual income tax and transfer payment both help to reduce the overall income inequality, only individual income tax can reduce the inequality of income composition, while transfer payment will exacerbate it. In the background of the rising share of capital income, it may widen the income distribution gap in the long run. Hence, future fiscal redistribution efforts should consider the income composition inequality. This includes further promotion of individual income tax reforms, optimization of the tax rate structure, enhancement of relevant tax laws governing capital income like property income, and continuous improvement in the redistributive impact of fiscal instruments.

Національний феномен рентабельності банків в умовах війни

The aim of the article is to study the reasons for the profitability of the banking sector in the conditions of wartime, as well as to assess the effectiveness of the means of the State-based regulation to ensure financial stability. The theoretical approaches to the analysis of instruments of influence on indicators of stability of financial institutions in conditions of permanent external shocks are generalized. It is identified that the main factor in increasing the profitability of the banking sector of Ukraine during the wartime was the placement of excess liquidity in low-risk and high-yield financial assets, among which NBU certificates of deposit predominate. It is substantiated that the high attractiveness of these assets was formed as a result of maintaining a high level of the discount rate for a long period of time and the presence of a high interest margin on transactions with certificates of deposit. The consequences for the financial system and the economy of the phenomenon of increased profitability in conditions of low credit activity are determined. The positive consequences include an increase in the level of capitalization and financial stability of banking institutions. Among the negative ones, the inability to use the resource potential of the banking system for investment recovery of the economy is identified. The consequences of the use of instruments of fiscal redistribution of excess profits in favor of the State budget through an increase in the tax burden for banks are analyzed. Measures to equalize the yield on NBU certificates of deposit and domestic government bonds to accumulate excess liquidity and reduce lending during the wartime are proposed. The need to reorient demand from short-term to long-term government securities to cover the budget deficit in a non-emission way has been determined, which justifies the use of such a model of redistribution of financial resources accumulated by the banking system under the conditions of the wartime economy. It is emphasized that the use of this mechanism at the stage of post-wartime economic recovery will cause negative consequences in the form of the effect of crowding out private investment by the State and the slowed down economic growth.

Personal income tax, redistribution and income inequality in Sub-Saharan Africa

We assess the roles of personal income tax and fiscal redistribution in income inequality for 30 Sub-Saharan Africa economies from 1980 to 2020, employing the dynamic common correlated effect and cross-sectional augmented autoregressive distributed lag estimators. Empirical results show that personal income tax positively affects income inequality in the full sample SSA economies. Compared to the full sample, the magnitude of the effect remains positive but smaller for non-least developed countries (countries not classified as least developed countries in our sample). However, personal income tax has a negative effect on income inequality for least developed countries. Additionally, fiscal redistribution increases inequality in Sub-Saharan Africa economies and non-least developed countries, while it lowers inequality for least developed countries. Interestingly, fiscal redistribution reduces the level of the positive impact of personal income tax on inequality over the full sample. The main policy implication of this research is that well-designed redistributive fiscal measures associated with anti-corruption policy and good governance may help policymakers to reduce the positive effect of personal income tax on inequality in Sub-Saharan Africa economies.

Current Account Balances’ Divergence in the Euro Area: An Appraisal of the Underlying Forces

Abstract This paper revisits the crucial issue of current account imbalances and focuses on the determinants of their gaps between eurozone Member States. We conduct robust estimations of the current account balances for a panel of ten founding euro area economies and construct a measure that allows us to diagnose why some countries have started to diverge from the eurozone mean in the last two decades. Our findings show evidence of remaining differences in countries’ economic development, meaning that real macroeconomic convergence has failed in the zone. Price and cost competitiveness, as well as fiscal balances, have also participated in this growing macroeconomic divergence. Overall, while the European authorities cannot influence the part of the current account gaps due to demographic factors, the role of fiscal redistribution and investment at the euro area level could help achieve macroeconomic convergence and thus reduce current accounts’ divergence in the zone.

Accounting for the duality of the Italian economy

After 162 years of political unification, Italy still displays large regional economic differences. In 2019, the per capita GDP of Lombardia was 39,700 euros, but Calabria's per capita GDP was only 17,300 euros. We build a two-region, two-sector model of the Italian economy to measure the wedges that could account for the differences in aggregate variables between the North and the South. We find that the largest driver of the regional disparity in per capita output is the difference in total factor productivity, followed by fiscal redistribution. These two factors, together, account for more than 70 percent of the output disparity between the North and the South.

Taxing the Rich to Finance Redistribution: Evidence from a Permanent Tax Increase in Singapore

Based on a representative sample of consumer financial transaction data, this paper studies the consumption and savings response to a 2015 permanent increase in the marginal income tax of the high-income taxpayers. Using difference-in-differences regressions, controlling for individual and time fixed effects, we show robust results that the affected consumers experienced little change in their spending. The pattern is prevalent across consumer demographics and is found even among consumers who are sophisticated, have high levels of debt, or register little income changes. Furthermore, the tax increase financed fiscal redistribution leads to a long-lasting increase in the consumption of the lower-income population. This paper was accepted by Lukas Schmid, finance. Funding: The authors gratefully acknowledge financial support from Social Science Research Thematic Grant in Singapore [Future-Proofing Singapore: An Economic Approach MOE2019-SSRTG-024]. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4823 .

Fuel for regional income inequality in South Africa: redistribution effect of taxes

ABSTRACT This paper analyses the effect of fiscal redistribution on regional income inequality in South Africa using the spatial models. Yearly provincial-level data on different spending categories are considered for the period from 2014 to 2018. The study uses various spatial panel specifications to control for both spatial dependence and heterogeneity among provinces. When factor incomes and market prices are controlled for, empirical results indicate that local inequality spills over to neighbouring provinces. Particularly, a basic point increase in local income inequality contributes about 0.14 to 0.158-point increase in income inequality of neighbouring provinces. Furthermore, provincial spending allocation to social development grant and education spurs regional income inequality while expenses receipt on health, infrastructure, and conditional grants exhibit mitigating effects on provincial income inequality. These findings suggest that health, infrastructure, and conditional grants are key sectors to prioritize in the government’s efforts to reduce income inequality.

Taxation, Fiscal Redistribution, and Local Land Use Regulation

<h3>Abstract</h3> This paper explores the role of fiscal institutions for local land use. It argues that tax-base mobility results in an incentive to expand commercial and residential land use, which is mitigated by fiscal redistribution. These predictions are investigated empirically using a dataset of German municipalities. To identify differences in the exposure to fiscal redistribution, I exploit institutional characteristics of fiscal-equalization grants using a regression-discontinuity analysis. The results support the role of fiscal incentives for local land-use regulation, as commercial and residential land use is expanded much faster, and agricultural land use declines more rapidly in municipalities exempted from fiscal redistribution.

Immigration, skill acquisition, and fiscal redistribution in a search equilibrium model

AbstractAs recent immigration flows are reshaping the host countries workforce composition, this paper aims to assess whether age composition and skill adjustment dynamics play a relevant role in the welfare impact of immigration. To this end, we build and simulate a search and matching model that allows for endogenous natives’ skill acquisition and intergenerational transfers to analyze the welfare effects of immigration on a selected group of 19 OECD countries. The obtained results are then compared with those obtained under different assumptions on age composition and skill adjustment dynamics. Our comparative statics analysis shows that stronger job creation effects take place when natives adjust their skill in response to immigration. Moreover, taking into account age composition plays a key role in assessing the fiscal impact of immigration, which turns out to be positive when we include intergenerational transfers to retirees and immigration is high-skilled. Finally, we find that our model yields more optimistic welfare effects than standard search models that abstract from skill decision and intergenerational redistribution.

GENDER EQUALITY IN SPAIN AND PORTUGAL 2006-2022; ECONOMY AND COMPETITIVENESS

Economic gender differences persist. Patriarchy theory assumes political power for women will bring economic equality. We evaluated Global Gender Gap for Spain and Portugal (2006-2022). We found women Ministers or in Parliament do not correlate with economic equality, women participation in workforce, same salary for men and women nor same income. Patriarchy theory does not seem useful to reduce gender economic inequality. We found no significant differences between PSOE and PP Governments nor positive correlation of economic equality with country GDP nor competitiveness. We recommend measuring power, not parity, fiscal redistribution policies and promoting providing-caring social role gender interchange.

Ecosystem services from the forests of India; valuing it for rational , decentralized fiscal compensation and pioneering it to a model for REDD. H.S. Gupta and AnkitaSinha

Ecosystem services (E.S.) are the outcome of ecosystem functions of the forests, benefitting society and their economies immensely. Accounting and Valuation of ecosystem services emanating from forests is not only necessary to get its due importance among stakeholders, but it also helps designing the environment friendly and sustainable policies. This paper approximates the E.S. worth of forests of Indian states, on the basis of different frameworks and further shows how; such valuation of E.S. of forest has been used as “evidence” in argument for ensuring equitable fiscal redistribution from the national budget to forest rich states- which is important step for “Sustainable Forest Management” and optimal land use planning at national/regional level, by this tool IFT/EFT. Further, the available data on “actual monetary dispensation to states” and resultant “forest cover change” have been used to analyze how it has led to paradigm shift towards pro-forest/environment- financial decentralization, ensuring equitable distribution of economic resources in a federal setup and that has resulted in enhanced forest coverage. Beyond this; the evolved “fiscal redistribution mechanism” has also led to “default design” of a “pioneer”, model of REDD plus mechanism in the Indian context; which can further incentivizes, the states for their action to regulate “deforestation and degradation of forest”. A suggestion has also been made to make present EFT/IFT dispensation scheme more effective by using the both principles of dispensation i.e. “Derivation” and “cost-reimbursement” in combination;which is expected to make it a more “effective” and “efficient” model of REDD, ensuring equitable and efficient Forest/Environmental conservation.

Long-term relatedness and income distribution: understanding the deep roots of inequality

Abstract This article explores the role of long-term relatedness between countries, captured by an index of genetic distance, in driving worldwide differences in income inequality. The main hypothesis is that genetic distance gives rise to barriers to the international diffusion of redistributive policies and measures, and institutions, leading to greater income disparities. Using cross-country data, I consistently find that countries that are genetically distant to Denmark—the world frontier of egalitarian income distribution—tend to suffer from higher inequality, ceteris paribus. I also demonstrate that genetic distance is associated with greater bilateral differences in income inequality between countries. Employing data from the European Social Survey, I document that second-generation Europeans descending from countries with greater genetic distance to Denmark are less likely to exhibit positive attitudes towards equality. Further evidence suggests that effective fiscal redistribution is a key mechanism through which genetic distance to Denmark transmits to greater income inequality.

On the Character and Causes of Inequality in Latin America

On the Character and Causes of Inequality in Latin America

Asymmetric Political Representation and Fiscal Redistribution

This article demonstrates how the formation of new federations with power asymmetries, such as Canada at the time of Confederation—its constitutional moment—led to asymmetric representation, also referred to as malapportionment. The same power asymmetries that led to asymmetric representation also led to fiscal redistribution in which some sub-national jurisdictions obtained a share of federal government spending that was disproportionate to their share of the country’s population or their contribution toward federal government revenues.This article makes use of historical institutionalism to demonstrate that Confederation can best be viewed as a critical juncture and treats Canada as a case study in which both political malapportionment and fiscal redistribution were part of the initial federal bargain. It also shows how path dependence ensures that both malapportionment and fiscal redistribution have been persistent features of the Canadian federation and have become accentuated over time.Malapportionment is measured using the Loosemore-Hanby index of electoral disproportionality, as adapted by David Samuels and Richard Snyder. This permits comparisons between institutions, including the House of Commons and Senate, various caucuses within those institutions, and the federal cabinet. It also permits comparisons between jurisdictions and between different time periods. Fiscal redistribution is measured using Statistics Canada estimates of spending by the federal government in each province and territory and the amount of revenue it collects in those same jurisdictions. Progressive forms of taxation, direct spending by the federal government, and intergovernmental grants have all expanded exponentially and have led to increased fiscal redistribution.

Clientelism and fiscal redistribution: Evidence across countries

This article marshals empirical evidence from a cross-section of up to 87 countries to consider the impact of clientelism on fiscal redistribution in the form of direct taxes and public transfers. Clientelism may directly undermine fiscal redistribution towards poorer individuals because their political support is cheaper to buy, political patrons will limit redistribution to keep clients dependent and, moreover, will eschew fiscal policies that target broad categories of citizens based on explicit criteria, and favor instead private benefits that they can disburse to individual clients with a relatively high degree of discretion. The empirical analysis controls for a range of potentially confounding covariates, explores various transmission channels and accounts for the real possibility that more extensive redistributive programs may undermine the strength of clientelism. The results strongly suggest that clientelism is inimical to income redistribution towards the poor through taxes and transfers and, moreover, identify reduced public good provision as one indirect channel through which clientelism may undermine fiscal redistribution.

Alfred Marshall's Last Challenge: His Book on Economic Progress

Alfred Marshall's Last Challenge: His Book on Economic Progress

Unbundling the effect of political instability on income redistribution

The main objective of this study is to investigate potential political barriers to fostering an egalitarian redistribution of income within an economy. It empirically establishes that countries characterized by the prevalence of political instability are less likely to adopt progressive income redistribution. Employing data for up to 143 countries between 1996 and 2015, I consistently find evidence that political instability has a negative impact on effective fiscal redistribution, captured by the difference between market and net income inequality. Further analyses indicate that the economic and statistical significance of the redistributive impact of political instability is stronger in non-democratic and highly diverse societies, and low-income economies. Hence, the detrimental effect of political uncertainty on effective fiscal redistribution appears to hold only in non-democratic, fragmented and low-income countries. The findings imply that reducing political instability contributes to establishing an egalitarian redistribution of income, potentially leading to less income inequality.