Income Inequalities and Fiscal Policies. Evidence from EU Member States

Abstract

The main aim of our empirical analysis is to quantify the social impact of fiscal policies on income redistribution throughout the EU Member States on a database of fiscal, social and economic factors. Our research is conducted by using the Gini coefficient as the indicator of income redistribution, as well as the dependent variable, and the following influencing variables: taxes, index of perception of corruption, tax burden, education level, human development index, private property protection, unemployment rate, GDP per capita, private and public expenditure. Hence, by employing both the ‘Least squares’ method and the ‘Generalized Method of Moments’ we have identified significant results which highlight important social and economic development discrepancies throughout the EU Member States, as well as different fiscal policies and legislative frameworks. Moreover, by testing the robustness of the variables, we have identified that taxes exert more negative effects according to the degree of their regressivity. Our results offer strong empirical evidence supporting the idea that beyond designing more balanced fiscal systems (by the use or weight of direct/indirect taxes), public authorities should target the reduction of income inequalities using other instruments and reforms beside the fiscal ones (education, rule of law, legislative systems quality).