| Abstract |
This paper investigates the joint relationship between economic growth, inequality, and fiscal policy. The analysis focuses on a panel made up of 47 Japanese prefectures for the period 1989-2015. To i...dentify and assess the impact of each variable on the others, we estimate two types of equations systems (a seemingly unrelated regressions system and a simultaneous equation model). The results confirm the detrimental effect of inequality on economic growth and the damaging effect of economic growth on inequality. Regarding the fiscal policy, the results emphasize the fact that distributive expenditures enable to reduce inequality while non-distributive expenditures, direct and indirect taxes contribute to increasing inequality. The results also indicate that distributive and nondistributive expenditures are beneficial to economic growth. In contrast, they show that direct taxes have a deleterious effect on economic growth. Finally, the results confirm the hypothesis stating that more inequality demands more redistribution. Moreover, they confirm that more inequality calls for fewer taxes.show more
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