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Fiscal Reforms, Long-term Growth and Income Inequality

Author

Listed:
  • Mr. Santiago Acosta Ormaechea
  • Mr. Takuji Komatsuzaki
  • Carolina Correa-Caro

Abstract

We estimate the effects on growth of nine fiscal reform episodes in seven high-income countries using the Synthetic Control Method. These episodes are selected using an indicator-based approach applied to the evaluation of growth-friendly fiscal reforms during 1975-2010. We find that in reform countries the annual growth rate of real GDP was on average about 1 percentage point above their synthetic units 10 years after each respective reform. Moreover, countries which were initially less developed seemed to experience a larger growth impact after their reforms. Results are broadly robust to controlling for structural reforms on business regulation, financial market, labor market, and legal and product markets, which may also affect growth. Our findings also suggest that inequality is not affected by the growth-friendly fiscal reforms analyzed in this paper.

Suggested Citation

  • Mr. Santiago Acosta Ormaechea & Mr. Takuji Komatsuzaki & Carolina Correa-Caro, 2017. "Fiscal Reforms, Long-term Growth and Income Inequality," IMF Working Papers 2017/145, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/145
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    Citations

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    Cited by:

    1. Daniel Borebly, 2018. "A case study on Germany's aviation tax using the synthetic control approach," Working Papers 1816, University of Strathclyde Business School, Department of Economics.
    2. Borbely, Daniel, 2019. "A case study on Germany’s aviation tax using the synthetic control approach," Transportation Research Part A: Policy and Practice, Elsevier, vol. 126(C), pages 377-395.
    3. Peter Mikek, 2023. "Financial deepening and income inequality: is there a financial Kuznetz curve in Latin America?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 13(1), pages 103-125, March.

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