Does Re-distribution Measures beyond Tax-Subsidy Policy Instrument Reduce Inequality?

Despite Bangladesh’s spectacular improvement in terms of social development indicators in

the last two decades, it has been ranked as the fasted growing country with an increasingly rich
population in the world (World Ultra Wealth-X, 2018). In Bangladesh, the top 5 % of income-
earning people have taken over 95% of total income according to HIES, 2016. As in the
developed and other developing countries, many in the academia felt compelled to try to answer
the impact of unequal income distribution on growth, many in Bangladesh have also done
likewise. Although the lack of reliable data, differences in the methodology used gave rise to a
lack of consensus in this literature.

To compare past studies based on Bangladesh {Ferdousi, S. & Dehai, W. (2014), Zaman, K.
A., & Akita T. (2011), Hoque, M. O. (2007)}; some have reported a negative relationship
between growth and inequality and others recorded positive interaction while both suggested
policy intervention, only in the forms of tax-subsidy parameters i.e. imposing a tax on the big
capitalists' firms and subsidizing the small businesses to reduce high inequality. However,
existing literature has not yet considered human capital investment as a policy variable to
reduce inequality, and they fail to account for both the short and long-run consequences of
policy parameters.

To account for the other bottom 95% income-earning population of Bangladesh's economy, I
want to examine the inequality growth nexus by incorporating the following variables: income
distribution, growth, and re-distribution. Particularly, I am interested in understanding whether
government spending on human capital growth (Health and Education) reduces inequality by
increasing the supply of skilled labor and demand for such based on the hypothesis that it will
increase wage structure which will increase demand and thus investment and in the long run a
sustained growth. This study will use descriptive statistic measures to test the hypothesis. I will
use the Household Income and Expenditure Survey (HIES) datasets from the 1980-2017
periods. I believe, the contribution of this study to the literature will be two-fold: as post-policy
effects of the income distribution will be examined so not only gross but also net inequality
will be studied, and since the returns to health & education are time-consuming, both short and
long-run periods will be considered.

References:

1. Ferdousi, S. & Dehai, W. (2014): Economic growth, Poverty and Inequality trend in
Bangladesh. Asian Journal of Social Sciences & Humanities 3 (1), 1-11.

2. Zaman, K. A., & Akita T. (2011): Spatial Dimensions of Income Inequality and Poverty in
Bangladesh: An Analysis of the 2005 and 2010 HIES Data. Bangladesh Development Studies,
XXXV(3), 19-37.

3. Hoque, M. O. (2007): Preliminary Evaluation of Economic Development and Its Effect on

Income Distribution in Bangladesh. International Journal of Economic Development, 9 (1/2),
32-58.