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ALTERNATIVE GOVERNMENT SPENDING RULES: EFFECTS ON INCOME INEQUALITY AND WELFARE

Published online by Cambridge University Press:  08 October 2012

G. C. Lim  and
Paul D. McNelis
G. C. Lim*
Affiliation:
University of Melbourne
Paul D. McNelis
Affiliation:
Fordham University
*
Address correspondence to: G. C. Lim, Melbourne Institute of Applied Economic and Social Research, University of Melbourne, Victoria 3010, Australia; e-mail: [email protected].
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Abstract

This paper compares the effects of pro- and countercyclical government spending on income inequality and welfare in a small open economy. We examine the consequences of alternative government spending rules following shocks to productivity, domestic interest rates, terms of trade, and export demand. The simulated results show that welfare and income inequality indices can move in opposite directions for government spending rules, with countercyclical spending improving welfare and procyclical spending improving income equality.

Keywords

Cyclical Fiscal PolicyIncome InequalityEconomic Welfare
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 7 , October 2013 , pp. 1496 - 1518
Copyright
Copyright © Cambridge University Press 2012 

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