Working Paper: CEPR ID: DP13134
Authors: Joseph Zeira; Michele Battisti
Abstract: 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.
Keywords: public policy; income distribution; redistribution; income inequality
JEL Codes: D31; D63; C21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Direct taxes (H29) | Redistribution of income (D31) |
| Welfare transfers (I38) | Redistribution of income (D31) |
| Public education (H52) | Economic inequality (D31) |
| Public sector hiring (J45) | Economic inequality (D31) |
| Infrastructure investment (H54) | Economic inequality (D31) |
| Labor market regulation (J48) | Economic inequality (D31) |
| Public policies (H59) | Economic inequality (D31) |
| Increased public expenditures (H59) | Reduced inequality (I14) |