The Impact of Public Debt on Income Inequality

Abstract

Given the current increase of public debt among governments worldwide and the shift in the composition of that debt toward private sector borrowing, it has become necessary to examine the potential influence of public debt on inequality as a contribution to diagnosing the causes of economic inequality and identifying its mechanisms, especially given the high level of inequality worldwide over the past three decades. This study conducts an empirical investigation of the relationship between public debt and income inequality, comparing the possible effects in developed and developing nations, by employing Fixed- Effects panel regression for 30 developing and developed countries from 1990 to 2020. It is shown that public debt has a significant positive effect on income inequality for the pooled group of selected countries (the full sample). However, the study does not provide robust evidence regarding differences between the debt-inequality sensitivity in the sub-samples of developed and developing countries.