Research Information System
Türkiye Ekonomisi Çalıştayı İzmir, 2024, İzmir, Turkey, 2 - 03 May 2024, pp.1-8
This paper conducts a nuanced investigation into global income inequality, beginning with an empirical analysis highlighting enduring and significant intra-country disparities over the past four decades. By grouping nations into five categories based on per capita income, it explores how market dynamics contribute to economic inequality and examines the role of government in addressing these disparities. A key finding reveals that financial development's impact on inequality depends on a country's income group, showing that financial advancements affect nations differently based on their economic status. Further, the study delves into the implications of government size on inequality within and across countries, challenging the traditional advocacy for reducing the government's role. A theoretical model focuses on financial development, government size, and income inequality as foundational elements. This model seeks to clarify how these factors interact and influence the broader economic inequality landscape. It employs post-war U.S. calibrations from 1954 to 2000 by Gomme et al. (2006) and Gillman and Kejak (2011) to argue that although tax-based government efforts can reduce inequality, the progression of the financial system might unintentionally increase it, mainly due to the adverse effects of banking productivity on tax rates. By emphasizing the nuanced impact of financial development and the complex role of government intervention, the paper suggests a careful reevaluation of economic policies. It advocates for strategies that directly confront the multifaceted nature of economic inequality, aiming for a fairer distribution of income and improved opportunities for all societal segments.
Keywords:
Two-period Model, Financial Intermediation, Taxation, Income Inequality.
JEL
Codes: D63, G20, H20.