Introduction

This study examines the redistributive impact of government expenditure accounts for United
kingdom. The secondary data of Government expenditure by function (COFOG)) and inequality
estimates from WIID is download from OECD.stas. The fiscal data is taken from 2010 to 2017
for analysis.

LiteratureReview
The Wold Banks’ World Development Report (2017) emphasized the importance of public
policies that produce development outcomes like security, growth, and equity. Consequently, the
implementation of policies regarding government spending can significantly influence both
economic growth and income inequality. Many governments are currently involved in fiscal
consolidation, and there has been a growing focus on studying ways to minimize the negative
impact on income distribution when implementing fiscal adjustments (Woo and others 2013).
Through empirical evidence, (Kunawotor et al., 2022) has shown that fiscal redistribution,
achieved through income taxes and transfers, only has a limited effect in reducing the income
disparity between the wealthy and the impoverished. The research conducted by Persson and
Tabellini (1994) yielded inconclusive results regarding the hypothesis that inequality leads to
increased redistribution, and that such redistribution subsequently hampers economic growth.
Turning our attention to more recent studies, Bleaney et al. (2001), reported that government
consumption expenditure and spending on social welfare do not affect the rate of growth,
whereas public investment has positive effects. Recent studies have reported similar findings,
indicating that taxes have a positive impact on economic growth Padovano and Galli (2002a,
2002b; Bergh and Öhrn (2011). In view of above literature this study seeks to investigate impact
of fiscal redistribution on income inequality.

Results & Discussions

The findings can be summarized as follows. Overall, there is evidence that from 2010 till 2013
the average inequality for the United Kingdom (measured by the average of the Gini
coefficients) declined very slightly. There also appears evidence of convergence: initially higher
(lower) levels of inequality more frequently experienced a decline (increase). Later on, it is
noticeable that income inquality then started to raise from 2013 till 2014 and now it is stable
from 2016 to onward
3231.5
Gini Coefficient
31 30.5

2010 2012 2014 2016 2018

Year

The bar chart below shows that final consumptions and social benefits transfers in kind are
continuously being increasing from 2010 to 2010
380000

320000
370000

Social_benefits__transfers_in_kind
Final_consumption_expenditure

300000
360000

280000
350000 340000

260000

2010 2012 2014 2016 2018 2010 2012 2014 2016 2018
Year Year

The bar chart below shows that United Kingdom Government decisions of spending on property
and income never remained constant from 2010 till 2017. Whereas, government expenditures on
other current transfers were highest in 2010 and lowest in 2018, continuously delining.
 55000

45000
Property Income
50000

Other current transfers

40000
45000

35000
2010 2012 2014 2016 2018 2010 2012 2014 2016 2018
Year Year

The graph below shows fluctuations of government spending’s on other current transfers, it
declined from 2010 to 2012, started to rise and reached on peak in 2013. Later on, again started
to decline till 2018. Whereas, the redistribution of fiscal budget on social benefits is rapidly
rising from 2010 till onwards. Further, the graph below shows that spending’s on final
consumption expenditures always remained higher than social benefits in kind.
45000

320000
Social_benefits__transfers_in_kind
Other current transfers

300000
40000

280000 260000
35000

2010 2012 2014 2016 2018 2010 2012 2014 2016 2018
Year Year
400000
350000
300000
250000

2010 2012 2014 2016 2018

Year

Final_consumption_expenditure Social_benefits__transfers_in_kind
Descriptive Statistics

Table below presents the Gini coefficient for market income and the other three income concepts
shown in Table: disposable, total government expenditures, final consumption expenditure In
broad terms, final consumption expenditure measures how much individuals are able to actually
consume. Property income Intermediate cost includes the taxes on production as well as taxes on
consumption to pay tax for services to the government. Others includes other current transfers,
and social benefits in kind. The descriptive statistics below shows that maximum total
government spending’s are 8,365, 73 billion GBP and minimum of 7,550,10 billion GBP.
Further, it is noticeable from the table that government spending’s of highest proportion is on
final consumptions and lowest on gross capital

. summarize

Variable Obs Mean Std. Dev. Min Max

Year 8 2013.5 2.44949 2010 2017

TotalGover~e 8 788022.5 28791.19 755010 836573
Final_cons~e 8 353267.6 13442.83 337275 372789
PropertyIn~e 8 48953.38 3575.252 43886 55414
Social_ben~i 8 293813.5 17350.13 266550 314625

Intermedia~o 8 155880.9 6515.209 146819 162193

Othercurre~s 8 40552.13 3346.522 35572 45187
Grosscapit~q 8 47660.63 2580.739 43853 51455
GiniCoeffi~t 8 31.2875 .3720119 30.7 32

Correlation

The Pearson correlation shows that relation between gini-coefficient and other variables is
negative except other current account transfers and gross capital which is positive but weak
association.
 TotalG~e Final_~e Proper~e Social~i Interm~o Otherc~s Grossc~q GiniCo~t

TotalGover~e 1.0000
Final_cons~e 0.9898 1.0000
PropertyIn~e 0.3453 0.2593 1.0000
Social_ben~i 0.9542 0.9724 0.2237 1.0000
Intermedia~o 0.8392 0.8865 0.0362 0.8892 1.0000
Othercurre~s -0.9317 -0.9410 -0.3296 -0.9097 -0.7535 1.0000
Grosscapit~q 0.5657 0.5625 0.1651 0.3663 0.4478 -0.5988 1.0000
GiniCoeffi~t -0.2622 -0.2655 -0.2390 -0.4548 -0.3927 0.1534 0.5708 1.0000

Linear Regression

The analysis of linear regression shows that there is not significant impact of Govenment
expenditure by function (COFOG on ginni coefficient of income inequality. The f-test score is
17.2 and its p-value is 0.1825 which is greater than alpha of 0.05 which shows that model is not
statistically significant in income inequality.

> ertyIncome Final_consumption_expenditure

Source SS df MS Number of obs = 8

F( 6, 1) = 17.20
Model .959452838 6 .159908806 Prob > F = 0.1825
Residual .009297162 1 .009297162 R-squared = 0.9904
Adj R-squared = 0.9328
Total .96875 7 .138392857 Root MSE = .09642

GiniCoefficient Coef. Std. Err. t P>|t| [95% Conf. Interval]

Grosscapitalformationandacq .0001049 .0000996 1.05 0.484 -.0011605 .0013702

Othercurrenttransfers -.0000139 .0000729 -0.19 0.880 -.0009407 .0009129
IntermediateconsOthertaxeso -.0000423 .0000237 -1.79 0.324 -.000343 .0002584
Social_benefits__transfers_in_ki -.0000218 .0000526 -0.42 0.749 -.0006901 .0006464
PropertyIncome -.000041 .0000127 -3.24 0.191 -.0002019 .0001199
Final_consumption_expenditure .0000265 .0000562 0.47 0.720 -.0006882 .0007412
_cons 32.51914 4.940207 6.58 0.096 -30.25214 95.29042

Conclusion: The analysis shows that income inequality cannot be determined from Govenment
expenditure by function (COFOG).

References

Aissaoui, N. (2017) ‘Is inequality harmful for broadband diffusion and economic growth?’,
Asian Economic and Financial Review, 7(8), pp. 799–808.
doi:10.18488/journal.aefr.2017.78.799.808.
Bergh, A. and Öhrn, N. (2011) ‘Growth effects of fiscal policies: A critical appraisal of
colombier’s (2009) study’, SSRN Electronic Journal [Preprint]. doi:10.2139/ssrn.2111152.

Bleaney, M., Gemmell, N. and Kneller, R. (2001) ‘Testing the endogenous growth model: Public
expenditure, taxation, and growth over the Long Run’, Canadian Journal of
Economics/Revue canadienne d’économique, 34(1), pp. 36–57. doi:10.1111/0008-
4085.00061.

Galor, O. and Moav, O. (2000) ‘From physical to human capital accumulation: Inequality in the
process of development’, SSRN Electronic Journal [Preprint]. doi:10.2139/ssrn.249868.

Kunawotor, M.E. et al. (2022) ‘The distributional effects of fiscal and monetary policies in
Africa’, Journal of Social and Economic Development, 24(1), pp. 127–146.
doi:10.1007/s40847-021-00172-y.

Padovano, F. and Galli, E. (2007) ‘Tax rates and economic growth in the OECD countries’,
Economic Inquiry, 39(1), pp. 44–57. doi:10.1111/j.1465-7295.2001.tb00049.x.

World Bank. 2017. World Development Indicators. Washington, DC: World Bank.