Description

This paper investigates the empirical characteristics of income inequality in China and a panel
of BRIC+ countries over the period 1980–2013, with a focus on the redistributive contribution
of fiscal policy. Using instrumental variable techniques to deal with potential endogeneity, we
find evidence supporting the hypothesis of the existence of a Kuznets curve—an inverted Ushaped
relationship between income inequality and economic development—in China and the
panel of BRIC+ countries. In the case of China, the empirical results indicate that government
spending and taxation have opposing effects on income inequality. While government
spending appears to have a worsening impact, taxation improves income distribution. Even
though the redistributive effect of fiscal policy in China appears to be stronger than what we
identify in the BRIC+ panel, it is not large enough to compensate for the adverse impact of
other influential factors.

More publications in this series: Working Papers

More publications by: Serhan Cevik ; Carolina Correa-Caro