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Title: The Crucial Role of Institutional Capacity in Fiscal Policy and Income Inequality
Abstract: The UN Sustainable Development Goals cannot be achieved because of the growing global challenge of income inequality. The study looks at how institutional strength and fiscal policy affect income inequality between developed and developing nations. The following findings have been established using the system Generalized Method of Moments (GMM) to control potential endogeneity for nations from 2000 to 2019. The first lag of inequality’s dynamic effect indicates that the growing income gap persists in both developed and developing nations. Additionally, we find evidence that income taxes in developing nations, but not in developed nations, are more progressive and may help reduce income inequality. However, it was discovered that taxes on goods and services had no global impact on income equality. The results also show that only in developed countries, government size, spending on health care, and education are associated negatively with income inequality. It was found that public debt had no effect on how income was distributed globally. We found that, in terms of institutional capacity, income distribution in developed and developing countries is not significantly impacted by corruption and government efficacy. However, even though they are usually insignificant, the coefficients of the interactions between fiscal policy and institutional capacity show the expected signs. There have been some policy recommendations made.
Keywords: fiscal policy; institutions; income inequality; taxes; GMM
Paper Quality: SCOPUS / Web of Science Level Research Paper
Subject: Economics
Writer Experience: 20+ Years
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