Taking Down the Wall: Transition and Inequality

February 14, 2020

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Format: Chicago

Serhan Cevik, and Carolina Correa-Caro. Taking Down the Wall: Transition and Inequality, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper investigates the main determinants of income inequality in transition countries during the period 1990–2018. To this end, we address a major methodological challenge that lies at the core of the cross-country literature on income inequality: the potential endogeneity of income growth, which is largely ignored by most empirical studies. We adopt a two-pronged empirical strategy by (i) using trading partners’ weighted average real GDP as an instrumental variable (IV), and (ii) estimating the model via the two-stage least squares (2SLS) approach for static models and the Generalized Method of Moments (GMM) estimator for dynamic models. Our empirical findings are consistent with the Kuznets curve that illustrates a nonlinear relationship between income inequality and the level of economic development. We also find that the redistributive impact of fiscal policy is statistically insignificant and taxation and government spending appear to have the opposing effects on income inequality in transition economies.

Subject: Expenditure, Fiscal policy, Income distribution, Income inequality, National accounts, Personal income

Keywords: Central and Eastern Europe, Economy, Estimate, Fiscal policy, Fiscal policy instrument, Gini coefficient, Global, Gross Gini coefficient, Income distribution, Income equality, Income inequality, Income redistribution, Institutional performance, Net, Net Gini coefficient, Personal income, Series from the SWIID database, Transition economies, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/032
Stock No:

WPIEA2020032
ISBN:

9781513527871
ISSN:

1018-5941

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