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Do fiscal rules breed inequality? First evidence for the EU

Author

Listed:
  • Jochen Hartwig

    (Department of Economics and Business Administration, Chemnitz University of Technology, Germany)

  • Jan Egbert Sturm

    (KOF Swiss Economic Institute, ETH Zurich, Switzerland)

Abstract

Research into the effects of fiscal rules has so far focused on their budgetary impact. Possible unwanted side effects of having fiscal rules have gone largely unexplored. This is unfortunate since such side effects are highly probable. For instance, governments attempting to abide by a fiscal rule might curb social expenditure; and this could lead to a higher level of income inequality. We test this hypothesis with data from the Standardized World Income Inequality Database (SWIID) and a new set of fiscal rules dummy variables for EU countries. We find that after 'hard' rules, i.e. rules that are reinforced by sanctions and/or automatic correction mechanisms, have been in place for several years, the amount of redistribution in a country declines, leading to an increase in inequality based on disposable income measures.

Suggested Citation

  • Jochen Hartwig & Jan Egbert Sturm, 2019. "Do fiscal rules breed inequality? First evidence for the EU," Economics Bulletin, AccessEcon, vol. 39(2), pages 1508-1515.
    • Handle: RePEc:ebl:ecbull:eb-18-00693
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    References listed on IDEAS

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    Cited by:

    1. Johannes Blum & Klaus Gründler & Raphael de Britto Schiller & Niklas Potrafke, 2019. "Die Schuldenbremse in der Diskussion – Teilnehmer des Ökonomenpanels mehrheitlich für Beibehaltung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 72(22), pages 27-33, November.
    2. Brändle, Thomas & Elsener, Marc, 2023. "Do fiscal rules matter? A survey on recent evidence," Working papers 2023/07, Faculty of Business and Economics - University of Basel.
    3. George Petrakos & Kostas Rontos & Luca Salvati & Chara Vavoura & Ioannis Vavouras, 2024. "Income Inequality in the Over-Indebted Eurozone Countries and the Role of the Excessive Deficit Procedure," Open Economies Review, Springer, vol. 35(2), pages 301-322, April.
    4. Florian Haelg & Niklas Potrafke & Jan-Egbert Sturm, 2022. "The determinants of social expenditures in OECD countries," Public Choice, Springer, vol. 193(3), pages 233-261, December.
    5. Kea BARET, 2021. "Fiscal rules’ compliance and Social Welfare," Working Papers of BETA 2021-38, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    6. Thomas Brändle & Marc Elsener, 2024. "Do fiscal rules matter? A survey of recent evidence," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 160(1), pages 1-38, December.

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    More about this item

    Keywords

    Fiscal rules; Inequality; European Union;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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