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The distributional consequences of foreign transfers: do they reduce or exacerbate inequality?

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  • Serpil Bouza
  • Stephen J. Turnovsky

Abstract

This paper employs a dynamic two-sector dependent-economy model to study the impact of foreign transfers on a country's aggregate economic performance, as well as its distributions of wealth, income, and welfare. The transfers may be allocated to debt reduction, or to the productivity enhancement of the traded or nontraded sector. The effect of the transfer on aggregate economic performance depends crucially upon: (i) the relative capital intensities of the two productive sectors, and (ii) the allocation of the transfers across the sectors. The consequences for wealth and income inequality depend not only upon these factors, but also upon (iii) the economy's access to the world financial market. Most of the analysis is conducted using simulations, where we characterize the dynamic evolution of both the aggregate economy and the inequality measures. Whether growth and inequality are positively or negatively associated over time depends upon the three factors noted above. Copyright 2012 Oxford University Press 2011 All rights reserved, Oxford University Press.

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  • Serpil Bouza & Stephen J. Turnovsky, 2012. "The distributional consequences of foreign transfers: do they reduce or exacerbate inequality?," Oxford Economic Papers, Oxford University Press, vol. 64(4), pages 702-735, October.
    • Handle: RePEc:oup:oxecpp:v:64:y:2012:i:4:p:702-735
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    File URL: http://hdl.handle.net/10.1093/oep/gpr048
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    Cited by:

    1. Jonathan Temple & Huikang Ying & Patrick Carter, 2014. "Transfers and Transformations: Remittances, Foreign Aid, and Growth," Bristol Economics Discussion Papers 14/649, School of Economics, University of Bristol, UK, revised 02 Dec 2014.
    2. Stephen J. Turnovsky & Iñaki Erauskin, 2022. "Productive government expenditure and its impact on income inequality: evidence from international panel data," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 158(1), pages 331-364, February.
    3. G. C. Lim & Paul D. McNelis, 2014. "Income Inequality, Trade and Financial Openness," Melbourne Institute Working Paper Series wp2014n07, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    4. José Alves, 2018. "A DSGE Model to Evaluate the Macroeconomic Impacts of Taxation," Working Papers REM 2018/62, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    5. Lim, G.C. & McNelis, Paul D., 2016. "Income growth and inequality: The threshold effects of trade and financial openness," Economic Modelling, Elsevier, vol. 58(C), pages 403-412.
    6. Domenico Rossignoli, 2015. "Too many and too much? Special-interest groups and inequality at the turn of the century," Rivista Internazionale di Scienze Sociali, Vita e Pensiero, Pubblicazioni dell'Universita' Cattolica del Sacro Cuore, vol. 130(3), pages 337-366.
    7. Erauskin, Iñaki & Turnovsky, Stephen J., 2019. "International financial integration and income inequality in a stochastically growing economy," Journal of International Economics, Elsevier, vol. 119(C), pages 55-74.

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