Fiscal multipliers and income inequality (The case of OECD countries, Russia and China)

This study assesses the impact of fiscal multipliers on the level of socioeconomic inequality in 38 countries based on data from the period 2007-2022 with the aim to explore causal relationships between the potential methods of public financial regulation and income indicators in the context of achieving sustainable economic growth. First the fiscal multipliers are estimated relative to GDP, then the obtained data is used to explain the level of income inequality across a broad range of countries. It is shown that the average level of wealth inequality directly influences the level of post-tax income inequality, therefore, addressing income inequality should not neglect other forms of inequality, particularly wealth distribution inequality; the effectiveness of fiscal policy has a reverse impact on the level of post-tax income inequality, indicating that a high share of the shadow economy, inefficient tax administration, and redistributive function of public finances contribute to high levels of income inequality. Budgetary instruments for poverty control, targeting, and the efficiency of budgetary expenditures can alter the level of income inequality.