DP13134 Inequality and Public Policy

Author(s): Michele Battisti, Joseph Zeira
Publication Date: August 2018
Keyword(s): income distribution, Income inequality, public policy, redistribution
JEL(s): C21, D31, D63
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13134

This paper examines the relationship between public policies and economic inequality. It shows that public policies have a significant and large effect on inequality. One influence is through redistribution, as fiscal policy affects the distribution of disposable income through progressive direct taxation and through social benefits. This effect is captured by a single comprehensive variable, which is public expenditures as percent of GDP. Public policy affects the distribution of market incomes as well, through public education, through hiring to the public sector, through building infrastructure and through labor market regulation.