Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/246834 
Year of Publication: 
2021
Series/Report no.: 
FMM Working Paper No. 69
Publisher: 
Hans-Böckler-Stiftung, Macroeconomic Policy Institute (IMK), Forum for Macroeconomics and Macroeconomic Policies (FMM), Düsseldorf
Abstract: 
Based on a narrative dataset constructed by David and Leigh (2018) that covers nine South American economies in the period 1982-2017, this paper estimates dynamic effects of fiscal consolidations on income inequality from Jordá (2005)'s local projections method. Results suggest that fiscal consolidations lead to a rise in income inequality in all specifications and data panels. When decomposing fiscal shocks, spending-based fiscal consolidations appear to significantly increase the Gini index, while tax-based fiscal consolidations do not show statistically significant effects on income inequality. The rise in the Gini index for disposable income caused by a spending-based fiscal adjustment of 1% of GDP varies between 1.74 and 3.22% in five years depending on the selected data panel (country-years). The magnitude of this effect is higher than in most of the previous studies carried out for OECD countries.
Subjects: 
income inequality
fiscal consolidation
fiscal austerity
South America
local projections
JEL: 
D30
D63
E60
E62
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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