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Inequality and government debt: Evidence from OECD panel data

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  • Luo, Weijie

Abstract

This paper analyzes how government debt can be caused by changes in the income distribution. Unlike Azzimonti et al. (2014), I distinguish between income inequality induced by differences in labor productivity and income inequality induced by differences in capital income, utilizing the Luxembourg Income Study. Using data for OECD countries, an increase in labor income inequality leads to higher debt level whilst capital income inequality is negatively associated with debt.

Suggested Citation

  • Luo, Weijie, 2020. "Inequality and government debt: Evidence from OECD panel data," Economics Letters, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519304380
    DOI: 10.1016/j.econlet.2019.108869
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    References listed on IDEAS

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    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
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    5. Marina Azzimonti & Eva de Francisco & Vincenzo Quadrini, 2014. "Financial Globalization, Inequality, and the Rising Public Debt," American Economic Review, American Economic Association, vol. 104(8), pages 2267-2302, August.
    6. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    7. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
    8. Weijie Luo & Andrew Pickering & Paulo Santos Monteiro, 2017. "Inequality and the Size of Government," Discussion Papers 17/02, Department of Economics, University of York.
    9. Kaymak, Barış & Poschke, Markus, 2016. "The evolution of wealth inequality over half a century: The role of taxes, transfers and technology," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 1-25.
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    Cited by:

    1. Cuesta, Lizeth & Ruiz, Yomara, 2021. "Efecto de la globalización sobre la desigualdad. Un estudio global para 104 países usando regresiones cuantílicas [Effect of globalization on inequality. A global study for 104 countries using quan," MPRA Paper 111022, University Library of Munich, Germany.
    2. Daisuke Miyashita, 2023. "Public debt and income inequality in an endogenous growth model with elastic labor supply," International Journal of Economic Policy Studies, Springer, vol. 17(2), pages 447-472, August.
    3. Weijie Luo, 2021. "Inequality and the size of US state government," Working Papers 594, ECINEQ, Society for the Study of Economic Inequality.
    4. Weijie Luo, 2022. "Inequality and growth in the twenty‐first century," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(4), pages 345-366, September.
    5. Mohsin, Muhammad & Ullah, Hafeez & Iqbal, Nadeem & Iqbal, Wasim & Taghizadeh-Hesary, Farhad, 2021. "How external debt led to economic growth in South Asia: A policy perspective analysis from quantile regression," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 423-437.

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    More about this item

    Keywords

    Capital income; Inequality; Government debt;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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