Inequality, growth and public spending in Central, East and Southeast Europe

Working Paper 2011-221

Abstract

The article analyses the joint determinants of inequality and growth with a special emphasis on public spending structures in transition. We find especially government expenditures on subsidies to be negatively correlated with both inequality and growth, as more generally government expenditures seem to act counter-cyclically and inequality reducing. Also, there is a mutual benefit of low real interest rates, to both equity and economic development. This hints to the fact that in the late 1990’s and early 2000’s the European integration process allowed several of the transition economies to aim for the best of both worlds: equity and economic development.

Authors: Mario Holzner.