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Fiscal consolidations and income inequality: Evaluating the evidence

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  • Konstantinou, Panagiotis Th.

Abstract

What are the effects of fiscal austerity on income inequality? In this paper I estimate the average treatment effect (ATE) of fiscal consolidations quantifying their dynamic impact by means of dose–response functions. Dose–response functions allow the ATEs to vary by the levels of treatment. I find that austerity indeed increases income inequality, however the increases manifest themselves whenever unannounced fiscal measures are relatively low, lower that 0.20% of GDP or relatively high, higher than 2.17% of GDP. For intermediate levels of fiscal measures income inequality does not change. These results hold for various measures of income inequality.

Suggested Citation

  • Konstantinou, Panagiotis Th., 2024. "Fiscal consolidations and income inequality: Evaluating the evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:quaeco:v:97:y:2024:i:c:s1062976924000863
    DOI: 10.1016/j.qref.2024.101880
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    Keywords

    Fiscal austerity; Income inequality; Dose-response function;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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