THE IMPACT OF NON-SYSTEMATIC DISCRETIONARY FISCAL POLICY ON INCOME DISTRIBUTION: A CROSS COUNTRY ANALYSIS

Abstract

The rising income inequality is a global problem, and reducing income inequality is one of the Sustainable Development Goals of the United Nations. This paper examines the impact of non-systematic fiscal discretionary spending on income distribution in selected developed and developing countries. The paper's panel is comprised of 64 countries from 1980 to 2021. World Income Inequality Database (WIID) is utilized for income inequality data; moreover, the leftover variables are extracted from World Development Indicators (WDI). This study employed the Generalized Method of Moment (GMM) in a two-step Forward Orthogonal Deviation (FOD) transformation to obtain the results. In aggregate analysis, the study's results confirm the significant role of non-systematic fiscal discretionary spending in income distribution, revealing that income inequality is reduced with non-systematic discretionary public expenditures. In disaggregate analysis, the results of developing countries also found supportive evidence for the impact of non-systematic fiscal discretionary spending on income distribution, and it is concluded that income inequality significantly diminishes with the extension of non-systematic discretionary fiscal spending. In contrast, the developed countries’ results indicated that the non-systematic fiscal discretionary spending plays no role in income distribution and found that the income inequality of developed countries isn’t affected by discretionary public expenditures.