Does Decentralization Reduce Income Inequality? Only in Rich States


Cavusoglu T. , Dincer O.

SOUTHERN ECONOMIC JOURNAL, cilt.82, sa.1, ss.285-306, 2015 (SSCI İndekslerine Giren Dergi) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 82 Konu: 1
  • Basım Tarihi: 2015
  • Doi Numarası: 10.1002/soej.12047
  • Dergi Adı: SOUTHERN ECONOMIC JOURNAL
  • Sayfa Sayıları: ss.285-306

Özet

We investigate the relationship between fiscal decentralization and income inequality using data from U.S. states over three and a half decades. Our study contributes to the literature in several ways in terms of empirical methodology and specification. First, we take into account integration and cointegration properties of the data and estimate the cointegrating relationship between fiscal decentralization and income inequality using Fully Modified Ordinary Least Squares, following Pedroni (2000). Second, we investigate the direction of the causality. Finally, and perhaps most importantly, we investigate if the relationship between fiscal decentralization and income inequality is conditional on income in each state. We find that fiscal decentralization does reduce income inequality, but only in rich states. We also find that causality runs from fiscal decentralization to income inequality, not the other way around.