Human Capital and Income Inequality in Sub-Saharan Africa: Does Reallocation of Resources Matter?

Abstract

Abstract In this paper, we analyze the effect of reallocating resources to human capital (education and health) on income inequality (II) in sub-Saharan Africa (SSA) by keeping the total level of public expenditure unchanged. Using a sample of 33 SSA countries, we estimate a panel data model using the fixed-effect ordinary least squares (OLS) technique with the Driscoll and Kraay estimator for standard errors and the Generalized Method of Moment (GMM) in system technique over the period 2004–2020. Our model is inspired by the work of Ormaecheas and Morozumi (2017) and Doumbia and Kinda (2019). Our results reveal that: (i) the reallocation of resources to education and health financed by cutting military and infrastructure spending does not contribute to a significant reduction of II in SSA. Security challenges and corruption problems are the main explanatory factors for this insignificant effect. (ii) The reallocation of resources to education and health financed by a cut in social protection spending significantly amplifies SSA's II. The vulnerability of the social strata and the profound precariousness of the population are the result of such an outcome in SSA. Our results suggest that the fight against II depends on the fight against corruption, the improvement of the quality of public spending and a better reallocation of resources.