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The Great Divide: Regional Inequality and Fiscal Policy

Author

Listed:
  • William Gbohoui
  • Mr. Waikei R Lam
  • Victor Duarte Lledo

Abstract

Growing regional inequality within countries has raised the perception that “some places and people” are left behind. This has prompted a shift toward inward-looking policies and away from pro-growth reforms. This paper presents novel stylized facts on regional inequality for OECD countries. It shows that regional disparity in per-capita GDP is large (even after adjusting for regional price differences), persistent, and widening over time. The paper also finds that rising nationwide income inequality is associated with both rising within-region income inequality and widening average income across regions. The rise in inequality is related to declining incentives for interregional labor mobility, especially for poor households in lagging regions, which are estimated to reduce by as much as one-third in the United States. Against these facts, the paper proposes a framework to identify whether, how and by whom fiscal policies can be used to tackle regional inequality. It outlines conditions under which those policies should be spatially-targeted and illustrates how they can be complementary to conventional means-testing methods in mitigating income inequality.

Suggested Citation

  • William Gbohoui & Mr. Waikei R Lam & Victor Duarte Lledo, 2019. "The Great Divide: Regional Inequality and Fiscal Policy," IMF Working Papers 2019/088, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:2019/088
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    References listed on IDEAS

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    1. David Bartolini, 2015. "Municipal Fragmentation and Economic Performance of OECD TL2 Regions," OECD Regional Development Working Papers 2015/2, OECD Publishing.
    2. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
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    Cited by:

    1. Bayoumi, Tamim & Barkema, Jelle, 2022. "The Economic Consequences of IT," SocArXiv 8u6an, Center for Open Science.
    2. Andrey A. Pugachev, 2022. "Taxation-Based Indicators as a Measure of Income Inequality in Russian Regions," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 8(1), pages 40-53.
    3. Sugata Marjit & Amlan Majumder & Sandip Sarkar & Lei Yang, 2020. "Inequality Convergence and Distribution Neutral Fiscal Policy," CESifo Working Paper Series 8119, CESifo.
    4. A.A. Pugachev, 2024. "Designing Income Taxation to Reduce Income Inequality in Russia: A Modeling Approach," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 10(2), pages 381-396.
    5. Diana Barros & Aurora A. C. Teixeira, 2021. "Unlocking the black box: A comprehensive meta-analysis of the main determinants of within-region income inequality," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 41(1), pages 55-93, February.
    6. Andrey A. Pugachev, 2023. "Assessment of the Impact of Social Tax Deductions for Personal Income Tax on the Welfare and Inequality of Citizens in Russia," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 22(4), pages 789-813.
    7. Andrés Niembro & Jésica Sarmiento, 2021. "Regional development gaps in Argentina: A multidimensional approach to identify the location of policy priorities," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(4), pages 1297-1327, August.

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