IDEAS home Printed from https://ideas.repec.org/p/col/000122/010620.html
   My bibliography  Save this paper

The effect of social spending on income inequality:An analysis for Latin American countries

Author

Listed:
  • Monica Ospina

Abstract

Using a panel dataset from 1980 to 2000 this paper analyzes the determinants of income inequality in Latin American countries with special attention paid to education, health, and social security expenditures. I build on previous research by solving for the endogeneity of the social spending variables in the income inequality equation. This study undertakes 2SLS and GMM methods in order to control for the correlation of some of the regressors with the disturbance term. While government expenditure affects inequality, an increase in inequality may be related to social, economic and political changes that can also affect government expenditures. Therefore, social spending is potentially endogenous in the inequality regression and, unless this source of endogeneity is accounted for, the estimated parameters will be not consistent. Results show that social spending variables are endogenous with income inequality index. Once endogeneity is controlled for, education and health expenditures have a negative effect on income inequality, while social security expenditures have no effect on income inequality. I also find that models that do not take into account endogeneity of social spending variables overestimate the effects of education and health spending.

Suggested Citation

  • Monica Ospina, 2009. "The effect of social spending on income inequality:An analysis for Latin American countries," Documentos de Trabajo de Valor Público 10620, Universidad EAFIT.
    • Handle: RePEc:col:000122:010620
    as

    Download full text from publisher

    File URL: http://repository.eafit.edu.co/bitstream/10784/565/1/2009-3%20Monica%20Ospina.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. José De Gregorio & Jong–Wha Lee, 2002. "Education and Income Inequality: New Evidence From Cross‐Country Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 48(3), pages 395-416, September.
    2. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    3. Gupta, Sanjeev & Verhoeven, Marijn & Tiongson, Erwin R., 2002. "The effectiveness of government spending on education and health care in developing and transition economies," European Journal of Political Economy, Elsevier, vol. 18(4), pages 717-737, November.
    4. Dollar, David & Kraay, Aart, 2002. "Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
    5. Branko Milanovic, 2005. "Can We Discern the Effect of Globalization on Income Distribution? Evidence from Household Surveys," The World Bank Economic Review, World Bank, vol. 19(1), pages 21-44.
    6. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
    7. O'Neill, Donal, 1995. "Education and Income Growth: Implications for Cross-Country Inequality," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1289-1301, December.
    8. Angus Deaton & Christina Paxson, 1997. "The effects of economic and population growth on national saving and inequality," Demography, Springer;Population Association of America (PAA), vol. 34(1), pages 97-114, February.
    9. Checchi, D., 2000. "Does Educational Achievement Help to Explain Income Inequality?," Research Paper 208, World Institute for Development Economics Research.
    10. Emanuele Baldacci & Maria Teresa Guin-Siu & Luiz De Mello, 2003. "More on the effectiveness of public spending on health care and education: a covariance structure model," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 709-725.
    11. Milanovic, Branko, 2002. "Can we discern the effect of globalization on income distribution? evidence from household budget surveys," Policy Research Working Paper Series 2876, The World Bank.
    12. David De Ferranti & Guillermo E. Perry & Francisco H.G. Ferreira & Michael Walton, 2004. "Inequality in Latin America : Breaking with History?," World Bank Publications - Books, The World Bank Group, number 15009.
    13. Morley, Samuel A., 2001. "The income distribution problem in Latin America and the Caribbean," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2274 edited by Eclac, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dagim Tadesse Bekele, 2020. "Effect of Macroeconomic, Demographic, and Governance Factors on Income Inequality of Selected sub-Saharan Africa Countries," Journal of Economic Development, Environment and People, Alliance of Central-Eastern European Universities, vol. 9(1), pages 60-70, September.
    2. Deven Bansod & Geetilaxmi Mohapatra & A. K. Giri, 2017. "Fiscal Policy, Economic Growth and Income Inequality: A Case of Indian Economy," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 20(63), pages 72-88, March.
    3. Abdulaleem Isiaka & Alexander Mihailov & Giovanni Razzi, 2022. "Distributional Effects of Public Spending and Tax Shocks in Middle-Income Countries: A Panel VAR Approach," Economics Discussion Papers em-dp2022-09, Department of Economics, University of Reading.
    4. Mursit Recepoglu, 2022. "Public Expenditures, Economic Growth and Income Inequality: Empirical Evidence from the Commonwealth of Independent States," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 9(2), pages 293-314, July.
    5. Abdulaleem Isiaka & Alexander Mihailov & Giovanni Razzi, 2022. "Reallocating Government Spending to Reduce Income Inequality: Panel Data Evidence from the Middle-Income Countries," Economics Discussion Papers em-dp2022-08, Department of Economics, University of Reading.
    6. Quinonez, Pablo, 2022. "Social spending and income inequality in Latin America. A panel data approach," MPRA Paper 113538, University Library of Munich, Germany.
    7. Bird, Richard M. & Zolt, Eric M., 2015. "Fiscal Contracting in Latin America," World Development, Elsevier, vol. 67(C), pages 323-335.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mónica Patricia Ospina, 2014. "El efecto del gasto social en la distribución del ingreso: un análisis para economías latinoamericanas," Revista Ciencias Estratégicas, Universidad Pontificia Bolivariana, December.
    2. Kraay, Aart, 2004. "When is growth pro-poor? Cross-country evidence," Policy Research Working Paper Series 3225, The World Bank.
    3. Jorge Martinez-Vazquez & Violeta Vulovic & Yongzheng Liu, 2011. "Direct versus Indirect Taxation: Trends, Theory, and Economic Significance," Chapters, in: Emilio Albi & Jorge Martinez-Vazquez (ed.), The Elgar Guide to Tax Systems, chapter 2, Edward Elgar Publishing.
    4. Aart Kraay, 2004. "When is Growth Pro-Poor? Cross-Country Evidence," IMF Working Papers 2004/047, International Monetary Fund.
    5. Mazhar Mughal, 2010. "Explaining income inequalities in the developing countries- the role of human capital," Post-Print hal-01881841, HAL.
    6. Adams, Samuel, 2008. "Globalization and income inequality: Implications for intellectual property rights," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 725-735.
    7. Asma Boussetta, 2022. "Microfinance, Poverty and Education," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(1), pages 86-108, March.
    8. Coen Teulings & Thijs van Rens, 2008. "Education, Growth, and Income Inequality," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 89-104, February.
    9. Isabelle Bensidoun & Sébastien Jean & Aude Sztulman, 2011. "International trade and income distribution: reconsidering the evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(4), pages 593-619, November.
    10. Hamid, Zarinah & Amin, Ruzita Mohd, 2013. "Trade and Human Development in OIC Countries: A Panel Data Analysis," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 21, pages 55-70.
    11. Oloufade, Djoulassi K., 2012. "Trade Openness, Conflict Risk and Income Inequality," MPRA Paper 40702, University Library of Munich, Germany, revised Feb 2013.
    12. Ghosh, sudeshna, 2017. "Education Attainment Forecasting and Economic Inequality United States," MPRA Paper 89712, University Library of Munich, Germany.
    13. Eva Militaru & Madalina Ecaterina Popescu & Amalia Cristescu & Maria Denisa Vasilescu, 2019. "Assessing Minimum Wage Policy Implications upon Income Inequalities. The Case of Romania," Sustainability, MDPI, vol. 11(9), pages 1-20, May.
    14. Isaac Ehrlich & Jinyoung Kim, 2007. "The Evolution of Income and Fertility Inequalities over the Course of Economic Development: A Human Capital Perspective," Journal of Human Capital, University of Chicago Press, vol. 1(1), pages 137-174.
    15. Gracia De Renteria, Pilar & Ferrer Perez, Hugo & Philippidis, George & Sanjuan Lopez, Ana Isabel, 2021. "Capturing the drivers of social SDGs: An econometric analysis of the dimensions of health and education," Conference papers 333271, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    16. MacDonald, Ronald & Majeed, Muhammad Tariq, 2010. "Distributional and Poverty Consequences of Globalization: A Dynamic Comparative Analysis for Developing Countries," SIRE Discussion Papers 2010-62, Scottish Institute for Research in Economics (SIRE).
    17. Martin Ravallion, 2013. "The Idea of Antipoverty Policy," NBER Working Papers 19210, National Bureau of Economic Research, Inc.
    18. Ozan Hatipoglu, 2012. "The relationship between inequality and innovative activity: a S chumpeterian theory and evidence from cross‐country data," Scottish Journal of Political Economy, Scottish Economic Society, vol. 59(2), pages 224-248, May.
    19. Humberto López & Luis Servén, 2015. "Too Poor to Grow," Central Banking, Analysis, and Economic Policies Book Series, in: Ricardo J. Caballero & Klaus Schmidt-Hebbel (ed.),Economic Policies in Emerging-Market Economies Festschrift in Honor of Vittorio Corbo, edition 1, volume 21, chapter 13, pages 309-350, Central Bank of Chile.
    20. Tiago Neves Sequeira & Marcelo Santos & Alexandra Ferreira-Lopes, 2017. "Income Inequality, TFP, and Human Capital," The Economic Record, The Economic Society of Australia, vol. 93(300), pages 89-111, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:col:000122:010620. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Valor Público EAFIT - Centro de estudios e incidencia (email available below). General contact details of provider: https://edirc.repec.org/data/cieafco.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.