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On Government Spending and Income Inequality under Monopolistic Competition

Author

Listed:
  • Juin-Jen Chang

    (Academia Sinica)

  • Jang-Ting Guo

    (Department of Economics, University of California Riverside)

  • Wei-Neng Wang

    (National Taichung University of Science and Technology)

Abstract

This paper systematically examines the theoretical as well as quantitative interrelations between government spending and disposable-income inequality in a tractable monopolistically competitive Ramsey macroeconomy. Upon a higher government size, we analytically show that whether the long-run after-tax Gini coefficient rises or falls depends on the sign and magnitude of the wealth inequality effect versus those of the adjusted-labor effect. Under (i) a mild level of productive public expenditures and (ii) a sufficiently high intertemporal elasticity of consumption substitution, our calibrated model is able to generate qualitatively as well as quantitatively consistent income-inequality effects of government spending vis-Ã -vis recent estimation results.

Suggested Citation

  • Juin-Jen Chang & Jang-Ting Guo & Wei-Neng Wang, 2021. "On Government Spending and Income Inequality under Monopolistic Competition," Working Papers 202103, University of California at Riverside, Department of Economics.
    • Handle: RePEc:ucr:wpaper:202103
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    File URL: https://economics.ucr.edu/repec/ucr/wpaper/202103.pdf
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    References listed on IDEAS

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    Cited by:

    1. 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.

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    More about this item

    Keywords

    Government Spending; Income Inequality; Monopolistic Competition.;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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