Reducing Inequality: Government Spending, Monetary or Tax Policy?
This study investigates the effects of economic policies on income inequality using state-level data with national level policies including government spending, monetary, and tax policy. The results can be summarized as follows.
First, I find that any of the expansionary policy shocks under consideration reduce inequality.
Second and importantly, unexpected changes in government spending have the largest impact on inequality among the three standardized economic policies.
Third, I find that all the considered economic policy shocks have larger impacts on income inequality during periods of expansion than in recessions.