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Social transfers and income inequality in OECD countries

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  • d’Agostino, Giorgio
  • Pieroni, Luca
  • Scarlato, Margherita

Abstract

In this paper, we estimate the effect of social transfers on disposable income inequality for a large panel of OECD countries. We account for the potential simultaneity bias exploiting an instrumental variable derived using a theoretical model, which identifies the main driver of social transfers from the interaction between electoral systems and partisanship of coalitions winning elections. The empirical analysis shows that a 1% increase in social transfers reduces income inequality by half a percentage point. This analysis also reveals significant heterogeneous results conditional on the level of corruption and appears to be robust to different components of expenditure, alternative model specifications and falsification tests.

Suggested Citation

  • d’Agostino, Giorgio & Pieroni, Luca & Scarlato, Margherita, 2020. "Social transfers and income inequality in OECD countries," Structural Change and Economic Dynamics, Elsevier, vol. 52(C), pages 313-327.
  • Handle: RePEc:eee:streco:v:52:y:2020:i:c:p:313-327
    DOI: 10.1016/j.strueco.2019.11.004
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    More about this item

    Keywords

    Welfare policy; Social spending; Income inequality; Instrumental variable estimation;
    All these keywords.

    JEL classification:

    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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