Kebalo, Léleng; Zou i, S éphane
A icle
Income inequali y in de eloping coun ies: Fiscal policy's
ole amid unce ain y
Jou nal o Applied Economics
P o ided in Coope a ion wi h:
Uni e si y o CEMA, Buenos Ai es
Sugges ed Ci a ion: Kebalo, Léleng; Zou i, S éphane (2024) : Income inequali y in de eloping
coun ies: Fiscal policy's ole amid unce ain y, Jou nal o Applied Economics, ISSN 1667-6726,
Taylo & F ancis, Abingdon, Vol. 27, Iss. 1, pp. 1-22,
h ps://doi.o g/10.1080/15140326.2024.2316969
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/314258
S anda d-Nu zungsbedingungen:
Die Dokumen e au EconS o dü en zu eigenen wissenscha lichen
Zwecken und zum P i a geb auch gespeiche und kopie we den.
Sie dü en die Dokumen e nich ü ö en liche ode komme zielle
Zwecke e iel äl igen, ö en lich auss ellen, ö en lich zugänglich
machen, e eiben ode ande wei ig nu zen.
So e n die Ve asse die Dokumen e un e Open-Con en -Lizenzen
(insbesonde e CC-Lizenzen) zu Ve ügung ges ell haben soll en,
gel en abweichend on diesen Nu zungsbedingungen die in de do
genann en Lizenz gewäh en Nu zungs ech e.
Te ms o use:
Documen s in EconS o may be sa ed and copied o you pe sonal
and schola ly pu poses.
You a e no o copy documen s o public o comme cial pu poses, o
exhibi he documen s publicly, o make hem publicly a ailable on he
in e ne , o o dis ibu e o o he wise use he documen s in public.
I he documen s ha e been made a ailable unde an Open Con en
Licence (especially C ea i e Commons Licences), you may exe cise
u he usage igh s as speci ied in he indica ed licence.
h ps://c ea i ecommons.o g/licenses/by/4.0/
Jou nal o Applied Economics
ISSN: (P in ) (Online) Jou nal homepage: www. and online.com/jou nals/ ecs20
Income inequali y in de eloping coun ies: fiscal policy’s
ole amid unce ain y
Léleng Kebalo & S éphane Zou i
To ci e his a icle: Léleng Kebalo & S éphane Zou i (2024) Income inequali y in de eloping
coun ies: fiscal policy’s ole amid unce ain y, Jou nal o Applied Economics, 27:1, 2316969,
DOI: 10.1080/15140326.2024.2316969
To link o his a icle: h ps://doi.o g/10.1080/15140326.2024.2316969
© 2024 The Au ho (s). Published by In o ma
UK Limi ed, ading as Taylo & F ancis
G oup.
Published online: 14 Feb 2024.
Submi you a icle o his jou nal
A icle iews: 3182
View ela ed a icles
View C ossma k da a
Ci ing a icles: 4 View ci ing a icles
Full Te ms & Condi ions o access and use can be ound a
h ps://www. and online.com/ac ion/jou nalIn o ma ion?jou nalCode= ecs20
RESEARCH ARTICLE
Income inequali y in de eloping coun ies: iscal policy’s ole
amid unce ain y
Léleng Kebalo
a
and S éphane Zou i
b
a
T ade Policies Re iew Di ision, Wo ld T ade O ganiza ion (WTO), Gene a, Swi ze land;
b
Di ec ion des
E udes Economiques e de l’In ég a ion Régionale, Cen al Bank o Wes A ican S a es (BCEAO), Daka ,
Senegal
ABSTRACT
This s udy in es iga es he impac o unce ain y on income
inequali y in de eloping coun ies. Unlike p io s udies, we analyse
he ole ha he iscal policy could play in he ela ionship. Using
a sample o 66 de eloping coun ies o e he pe iod 2000–2020, we
ind a se e al le els o obus ness ha , unce ain y inc eases
income inequali y in de eloping coun ies, especially hose wi h
iscal de ici s and less iscally disciplined. Addi ionally, we ind ha
iscal su pluses mi iga e he nega i e e ec s o unce ain y on
weal h dis ibu ion which in u n educes income inequali y. This
esul e eals he socio-economic s abilizing ole ha iscal policy
managemen could play du ing pe iods o unce ain y. Fiscal policy
can main ain and enhance economic s abili y when coun ies ace
ce ain unce ain y.
ARTICLE HISTORY
Recei ed 17 Ma ch 2023
Accep ed 5 Feb ua y 2024
KEYWORDS
Income inequali y;
unce ain y; iscal policy;
de eloping coun ies
1. In oduc ion
The mac oeconomic ola ili y ha accompanied he ecession o 2010 has s imula ed
new li e a u e on how unce ain y impac s economic ac i i y and especially decision-
making (Bloom, 2014). In ecen yea s, majo challenges ha e eme ged, causing global
poli ical and economic unce ain y. Successi e e en s in he a e ma h o he inancial
c isis o 2007 such as he “A ab Sp ing”, B exi , he ade wa be ween he U.S. and China
unde he T ump Adminis a ion, he COVID-19 pandemic and now he Russia-Uk aine
wa , ha e aised global unce ain y. The le el o unce ain y is now highe and mo e
impo an han e e be o e (Figu e 2).
The ole o unce ain y in economic luc ua ions is a he co e o economic decisions.
Howe e , i s dis ibu ional e ec s ha e ecei ed li le a en ion. Despi e he g owing
a en ion o bo h Economis s and Policymake s on he opic, li le e o has been de o ed
o s udying he e ec s o unce ain y on public choices, and i s socio-economic implica-
ions, especially in de eloping coun ies. The nega i e e ec s
1
o unce ain y wi h he
CONTACT Léleng Kebalo [email p o ec ed] T ade Policies Re iew Di ision, Wo ld T ade O ganiza ion
(WTO), Gene a, Swi ze land
1
(i) dis up ion in he supply chain a ec ing he p ice o goods and se ices, (ii) inc ease in he indeb edness o coun ies,
(iii) dis up ion o suspension o de elopmen p og ammes, (i ) educ ion in in es men , ( ) expec ed inc ease in
inequali y.
JOURNAL OF APPLIED ECONOMICS
2024, VOL. 27, NO. 1, 2316969
h ps://doi.o g/10.1080/15140326.2024.2316969
© 2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup.
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/
licenses/by/4.0/), which pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly
ci ed. The e ms on which his a icle has been published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o
wi h hei consen .
COVID-19 pandemic and he con lic be ween Russia and Uk aine a e some examples o
he impo ance o conside ing unce ain y in economic analyses and decision-making.
Indeed, he analysis o he e ec s o unce ain y could allow decision-make s o make
some e o ms o educe o a oid he economic e ec s o unce ain y shocks (Bon iglioli
e al., 2022).
Acco ding o he li e a u e (Bloom, 2014), unce ain y impac s economic ac i i y
h ough h ee main channels: (1) eal-op ions e ec s, (2) isk-p emium e ec s and (3)
p ecau iona y-sa ings e ec s. Rega ding he eal-op ions e ec s, i ms o companies
become mo e cau ious when decisions a e cos ly o e e , delaying hi ing and in es -
men s while hey wai o mo e in o ma ion, which as a consequence, leads o a decline in
he p oduc i i y and a ise in he unemploymen a e (Be nanke, 1983; Dixi e al., 1994).
Rega ding isk-p emium e ec s, an inc ease in unce ain y aises he p obabili y o
de aul and, consequen ly, he isk in he inancial ma ke (Ch is iano e al., 2014).
Indeed, o eign in es o s may be pa icula ly sensi i e o he le el o isk in he inancial
ma ke . When he isk inc eases, o eign in es o s may wi hd aw hei capi al om he
ma ke , which can lead o capi al ou low and dep ecia ion o he na ional cu ency. This
may ha e implica ions o mac oeconomic s abili y and he coun y’s abili y o impo
goods and se ices. Like i ms, households ha a e unsu e abou u u e income, pos pone
consump ion pa icula ly o du able goods, as a p ecau iona y measu e (Rome , 1990).
In ac , when households delay pu chases o educe spending, agg ega e demand o
goods and se ices declines. This can lead o a decline in he p oduc ion and sale o goods
and se ices, which in u n can slow economic g ow h.
Unce ain y can a ec income inequali y. Indeed, as unce ain y a ec s asse p ices, i s
impac on weal hy and poo households is no homogenous. Weal hy households a e
o en mo e esilien o shocks igge ed by unce ain y han poo e households. This
eali y con ibu es o inc easing income inequali y i measu es a e no aken by policy-
make s o suppo poo households. Despi e he ac he li e a u e on he e ec o
unce ain y on income inequali y is no abundan , i has been p o en ha his e ec
can depend on ac o s such as educa ion o example (B ueckne & Vespignani, 2017). In
his pape , we assume ha his e ec could depend on an economic esilience ac o : he
iscal posi ion. Indeed, he iscal posi ion o a coun y e lec s i s abili y o sel - inance
a ge ed spending o mi iga ing as soon as possible, he ad e se e ec s o unce ain y o
a c isis. When a de eloping coun y p esen s a iscal su plus, i is mo e eac i e in he
adop ion o measu es and p ecisely coun e cyclical policies o mi iga e he ad e se e ec s
o unce ain y (Bénassy-Qué é e al., 2016). I is no he case o a coun y which p esen s
iscal de ici s du ing pe iods when nega i e e ec s o unce ain y occu . In his case, he
coun y becomes less eac i e and hen adop s cyclical policies which can ampli y he
nega i e e ec s o unce ain y.
The cu en s udy is ele an because he educ ion o income inequali y is a c ucial goal
o sus ainable de elopmen (SDG 10). Indeed, income inequali y is conside ed as a ac o
ha slows economic g ow h (Alesina & Pe o i, 1996; S igli z, 2015), inc eases unemploy-
men , especially you h unemploymen (Adjo & Kebalo, 2018), can cause insecu i y and
poli ical ins abili y and educe he pace a which g ow h ansla es in o po e y educ ion
(Ba uo e al., 2022; Bou guignon, 2004). In he las decade, de eloping coun ies ha e
achie ed mo e p og ess in g ow h, bu income inequali y didn’ all (Ba uo e al., 2022;
Bicaba e al., 2017; Kebalo e al., 2022). The di icul ope a ion o income inequali y
2L. KEBALO AND S. ZOURI
educ ion in de eloping coun ies, despi e he mul iple adi ional – economic, ins i u ional,
and social – policies, calls o mo e cau ion abou how specialis s and esea che s analyse
he de e minan s o income inequali y. Mo eo e , de eloping coun ies a e mos o he
ime mo e exposed o he nega i e e ec s o global unce ain y. Thus, du ing pe iods o
high unce ain y, mos o hem a e o en obliged o suspend hei economic de elopmen
p og ams ha a e in ended o help o educe inequali ies and po e y. In addi ion, by
explo ing he iscal posi ion channel as a way o educe income inequali y in imes o
unce ain y, he pape highligh s he need o de eloping coun ies o imp o e hei iscal
policies and, he eby, os e economic de elopmen o he S a es conce ned.
The con ibu ion o his pape is wo old. Fi s , we use an inno a i e measu e o
unce ain y. Indeed, unce ain y is a subjec i e eeling abou he economy and is he e-
o e no di ec ly obse able. The e o e, he main challenge o Economis s is o ind an
app op ia e indica o o measu e i . In mos cases, p oxies which a e indices, a e used.
These indices, ei he don’ a y
2
ac oss coun ies o a e jus a ailable
3
o a g oup o
eme ging and de eloped coun ies. In his s udy, we use an inno a i e measu e o
unce ain y de eloped by a eam o expe s om he In e na ional Mone a y Fund
(Ahi e al., 2022): he Wo ld Unce ain y Index. This inno a i e index is supe io in
quali y o o he measu es o unce ain y because i is he i s compa able unce ain y
index ac oss de eloping, de eloped, and eme ging coun ies, and i includes bo h
poli ical and economic unce ain ies.
Second, we analyse he e ec o unce ain y on income inequali y in de eloping
coun ies by conside ing hei iscal posi ion as explained abo e. Indeed, he li e a-
u e in his a ea has explo ed o he ac o s ha can help mi iga e he impac o
unce ain y on income inequali y, such as human capi al, he deg ee o openness o
economies, he highe employmen a e and he sha e o employees wo king in he
manu ac u ing sec o (Fawaz e al., 2012; Fische e al., 2021; Thye e al., 2021). In
his pape , we hink ha iscal policy managemen can also play a ole in he
ela ionship be ween unce ain y and income inequali y. The objec i e o doing
his is o pe o m a obus ness analysis. In addi ion, we wan o p opose acco ding
o he ob ained esul s, a ge ed policies ha could help coun ies o become mo e
esilien du ing pe iods o unce ain y.
Gi en da a a ailabili y, he analysis is pe o med on a panel se o 66 de eloping
coun ies and co e s he pe iod 2000–2020. To ob ain eliable esul s, he gene al-
ized me hod o momen s (GMM) is used o add ess, amongs o he s, p oblems o
simul anei y and endogenei y. Resul s show ha unce ain y, no ma e he measu e
used, inc eases income inequali y. Ha ing a iscal de ici ( espec i ely iscal su plus)
con ibu es o exace ba e ( espec i ely o educe) income inequali y in de eloping
coun ies. Ou analysis shows ha du ing pe iods o unce ain y, iscal su pluses
help coun ies o mi iga e he nega i e e ec s o unce ain y on weal h dis ibu ion,
and he e o e, con ibu e o educing income inequali y. Howe e , o coun ies
wi h iscal de ici s, less iscally disciplined, unce ain y con ibu es o inc easing
income inequali y.
2
Fo example, we ha e he T ade Policy Unce ain y index de eloped by Calda a e al. (2020) and Handley and Limão
(2022), and he VIX: US inancial ma ke ola ili y indica o .
3
Fo example, we ha e he Economic Policy Unce ain y index de eloped by Bake e al. (2016).
JOURNAL OF APPLIED ECONOMICS 3
The es o he pape is o ganized as ollows. Sec ion 2 p esen s a li e a u e e iew.
Sec ion 3 p esen s he da a and discusses he es ima ion s a egy. Sec ion 4 p esen s and
discusses he esul s. Sec ion 5 concludes he analysis wi h economic policy
ecommenda ions.
2. Li e a u e e iew
Wi h he mul iplici y o economic policies a ailable o add ess global challenges and he
nega i e e ec s o shocks, he conside a ion o unce ain y in economic decision-making
and modelling ends o be minimized, especially in de eloping coun ies. The impo ance
o unce ain y in economic decision-making is highe han e e in oday’s in e connec ed
wo ld; and unce ain y, whe he economic, inancial, o poli ical, has impo an implica-
ions o economies and economic policies. I has a signi ican e ec on economic g ow h
Balcila e al. (2017)), consump ion and in es men (Be nanke, 1983), employmen
(Caggiano e al., 2017), commodi y p ices (Fang e al., 2018), bank e u ns (Pas o &
Ve onesi, 2012), e o ms (Bon iglioli e al., 2022), and income inequali y
(Theophilopoulou, 2022). This li e a u e e iew is ocused on h ee main s ands such
as he e ec o unce ain y on (1) economic ac i i y in gene al, (2) de elopmen policies
and e o ms, and (3) income inequali y.
2.1. Unce ain y and economic ac i i y
Acco ding o Be nanke (1983), unce ain y can indeed a ec household consump ion
and in es men decisions. I impac s he whole economy by slowing economic g ow h
and delaying consume spending when unce ain y is high (Bloom, 2009). In imes o
high economic unce ain y, in es men and spending become less a ac i e o he
a e age household (Pas o & Ve onesi, 2012). The e o e, he a e age household pos -
pones in es men because o he educ ion in pe sonal income and/o co po a e p o i -
abili y. Poli ical unce ain y also a ec s in es men . Indeed, companies educe hei
in es men s when he e is some unce ain y abou poli ical e o ms in de eloping
coun ies.
Rega ding he labou ma ke , Bloom (2014) shows ha luc ua ions in unce ain y
o en con ibu e o slow hi ing, as companies a e gene ally eluc an o make essen ial
cos ly decisions in unp edic able egula o y en i onmen s. Caggiano e al. (2017) show
ha he e ec o unce ain y on unemploymen is signi ican and e en mo e han wha
some p e ious s udies (Caggiano e al., 2014) ha e ound. Indeed, unce ain y con i-
bu es o inc easing unemploymen ola ili y, pa icula ly du ing ecessions and pe iods
o high unce ain y. Unce ain y shocks may be mo e impo an han mone a y policy
shocks o unde s anding he ise in unemploymen du ing ecessions. Whe he he
impac o unce ain y on unemploymen is jus i ied, Pie ce and Scho (2016) show ha
he impac on unemploymen depends on indus y exposu e o bo h economic policies
and in e na ional ade.
4L. KEBALO AND S. ZOURI
Since he publica ion o John Kenne h Galb ai h’s book “The Age o Unce ain y” in
1977 (Galb ai h, 1977), i is e iden ha he inancial sec o is sensi i e o unce ain y.
Unce ain y (policy unce ain y
4
) mays signi ican ly inc ease he isk p emiums in
a ious inancial ma ke s, he eby inc easing bo owing cos s, and unde cu ing p oduc-
i i y, ul ima ely esul ing in poo economic p ospec s (Gilch is e al., 2014).
Unce ain y can also a ec bank alua ions, whe e alues decline wi h he le el o
unce ain y. Du ing pe iods o high unce ain y, e u ns a e lowe han in o he pe iods
(Pas o & Ve onesi, 2012). Commodi y p ices a e also co ela ed o unce ain y. As
unce ain y inc eases, i leads o mo emen s in commodi y p ices (Fang e al., 2018).
2.2. Unce ain y, de elopmen policies and e o ms
The nega i e e ec s o unce ain y can be a eason o suspend e o ms and/o de elop-
men p og ams in a coun y. I can become a ba ie o he adop ion o e o ms. Indeed,
acco ding o Fe nandez and Rod ik (1991) and Alesina and D azen (1991), unce ain y
can lead o a b eak in he p og ess o economic e o ms and p og ams in coun ies ha
do no ha e iscal su pluses and e ec i e economic ins umen s o deal wi h i s pe e se
e ec s. Du ing pe iods o high unce ain y, some coun ies, especially de eloping coun-
ies, wi hou budge su pluses and in a si ua ion o indeb edness, a e o en o ced o
suspend momen ly hei economic and social de elopmen p og ams. One such example
is he suspension o he Togolese Na ional De elopmen Plan 2018–2022 due o he
nega i e economic e ec s o he COVID-19 pandemic ( educ ion in in es men o
ins ance). This de elopmen plan, o iginally designed o ans o m Togo economically
and socially, was se e ely modi ied wi h he ad en o he COVID-19 pandemic, o be
mo e ocused on esilience and economic eco e y.
I gene ally, unce ain y is a ba ie o some e o ms, i can a he same ime encou age
he de elopmen o new e o ms. The e is a consensus ha e o ms a e mo e likely o
occu du ing imes o c isis and high unce ain y (Rancii e & To nell, 2016). Fo
Tommasi and Velasco (1996), he unce ain y ha ollows economic ecessions acili a es
economic e o ms. By using one o he mos exhaus i e c oss-coun y panel da ase s on
e o ms in six majo a eas (domes ic inancial sec o , capi al accoun , p oduc ma ke s,
ag icul u e, ade, and cu en accoun ansac ions), Bon iglioli e al. (2022) show ha
unce ain y has a posi i e and signi ican e ec on he adop ion o e o ms. This esul is
obus o he inclusion o se e al a iables o con ol, such as poli ical and economic
a iables, c isis indica o s, and a hos o coun y, e o m, and ime- ixed e ec s.
Re o ms a e pe o med wi h he goal o a oid he consequences o u u e c ises. Fo
ins ance, wi h he consequences o he COVID-19 pandemic and he con lic be ween
Russia and Uk aine ha aised unce ain y a ound he wo ld, he Wo ld T ade
O ganiza ion (WTO) and coun ies ha e commi ed o some e o ms as espoused in
he Gene a package. This package o ag eemen s secu ed a he 12
h
Minis e ial
Con e ence (MC12) was he culmina ion o e o s by WTO membe s o p o ide con-
c e e ade- ela ed esponses o impo an challenges and unce ain y acing he wo ld
4
Policy unce ain y is he economic isk associa ed wi h unde ined u u e go e nmen policies and egula o y ame-
wo ks. I inc eases he isk ha economic agen s will delay hei spending, in es men , and consump ion expendi u es
due o ma ke unce ain y. The e o e, i can delay he eco e y o an economy du ing a c isis.
JOURNAL OF APPLIED ECONOMICS 5
oday. The e o ms p oposed by he WTO in esponse o he COVID-19 pandemic, and
he ood insecu i y igge ed by he Russia-Uk aine wa , will allow coun ies o be e
espond o some o he mos p essing challenges and he cu en unce ain y o ou ime.
In addi ion, o add ess he challenges o he COVID-19 pandemic, coun ies ha e
pe o med e o ms o imp o e hei esilience. Fo example, in some de eloping coun-
ies in A ica, e o ms ha e been made o be e digi alize public adminis a ion se ices.
The sha e o social spending (heal h, educa ion, and social p o ec ion) has inc eased in
he budge o many coun ies. In Wes A ica, mili a y p og amming laws ha e been
adop ed o inc ease he sha e o spending on secu i y de ence o limi he nega i e e ec s
o unce ain y associa ed wi h insecu i y. This e o m would help coun ies o main ain
in es o s’ con idence and p ese e in es men s. All hese examples show he cen al ole
ha unce ain y plays in he adop ion o e o ms.
2.3. Unce ain y and income inequali y
Unce ain y appea s o accoun signi ican ly o he a ia ion in income and consump-
ion inequali y (Theophilopoulou, 2022). Bu he li e a u e on he e ec o unce ain y on
income inequali y emains less abundan . The impo an ques ion ha a ises is how
income inequali y is a ec ed by unce ain y.
Households a e no a ec ed in he same way by unce ain y. Weal hy households a e
o en mo e esilien o unce ain y han poo households. Unce ain y shocks a ec
income inequali y depending on some ac o s. Fo B ueckne and Vespignani (2017),
he e ec o unce ain y on income inequali y depends on he le el o educa ion o he
popula ion, and he e o e, on i s abili y o an icipa e global e en s han can a ec
economies. Indeed, acco ding o hese au ho s, in a coun y whe e only a small sha e o
he popula ion is educa ed, an inc ease in unce ain y is associa ed wi h a signi ican
inc ease in income inequali y. Weal hy households (a small sha e o he popula ion),
which a e mos o he ime mo e educa ed, a e o en mo e esilien han poo and
ulne able households o unce ain y shocks because hey can an icipa e e en s ha
could a ec nega i ely economic ac i i y. Bu o he la ge sha e o he popula ion
composed o poo , ulne able, and middle-income households, and wi hou a high
le el o educa ion, i would be di icul o an icipa e unce ain e en s ha could a ec
hem economically and socially. Then, du ing pe iods o unce ain y, he consequence
will be he accen ua ion o income inequali ies, especially when economic and social
measu es – such as cash ans e s, subsidies o necessi ies, ax b eaks and banking
acili ies o ins ance, – a e no aken by policymake s in a ou o he la ge sha e o
he popula ion. The e o e, acco ding o B ueckne and Vespignani (2017), as he
educa ion le el o he popula ion inc eases, he co ela ion be ween unce ain y and
income inequali y dec eases.
On he o he hand, Fawaz e al. (2012) show s ong e idence ha business cycle
luc ua ions con ibu e o exace ba e income inequali y in high income de eloping
coun ies, while hey help na ow he gap in low income de eloping coun ies.
Mo eo e , hey ind ha schooling helps educe income inequali y in bo h coun y
g oups, while in es men inc eases income inequali y. Fo hei pa , Fische e al.
(2021) show ha income inequali y dec eases in mos s a es in he Uni ed S a es o
Ame ica, wi h a p onounced deg ee o he e ogenei y in e ms o he dynamic esponses.
6L. KEBALO AND S. ZOURI
In con as , some ew s a es, mos ly loca ed in he Midwes , display inc easing le els o
income inequali y o e ime. They explain ha he di e ence in he eac ion o house-
hold income inequali y is a ec ed by he composi ion o income and labou ma ke
undamen als such as sec o al employmen .
Fo Obiako e al. (2022), he sho - un e ec s o economic size and unce ain y on
income inequali y is posi i e and insigni ican . The e ec in he long un emains posi i e
and insigni ican o economic size, bu nega i e and signi ican o unce ain y. The e ec s o
o he a iables like go e nmen expendi u e and bi h a e a e nega i e and s a is ically
signi ican . Thye e al. (2021) indica e ha he impac o unce ain ies on income inequali y
on he ASEAN-5 coun ies was mo e signi ican in he long un han in he sho un. Indeed,
hei esul s indica e ha , in he long un, he income inequali y o he ASEAN-5 coun ies
was mo e sensi i e o ex e nal unce ain y shocks han o in e nal unce ain y shocks. In
pa icula , ex e nal unce ain y ( espec i ely in e nal unce ain y) was a signi ican de e mi-
nan o income inequali y o all coun ies ( espec i ely o Malaysia and Thailand). In
addi ion, in he sho un, while ex e nal unce ain y a ec ed Thailand’s income inequali y
le el signi ican ly, in e nal unce ain y was ound o ma e o he income inequali y le el o
Malaysia, Singapo e and Thailand. Mo eo e , hey demons a e ha eal pe capi a income
and in la ion wo sen income inequali y, while a highe employmen a e will ha e a co ec i e
impac on he income inequali y le el.
Whe he he e ec o unce ain y on income inequali y depends on educa ion and he
economic and social measu es unde aken by coun ies, he impo an ques ion is how o
inance hem. The managemen o iscal policy is he answe . Tha ’s why in his pape , we
analyse he e ec o unce ain y on income inequali y in de eloping coun ies by con-
side ing he ole ha can play he iscal policy.
3. Da a and me hodology
This sec ion highligh s he da a used and desc ibes he me hodology mobilized. Some s ylized
ac s a e p esen ed o explain mo e abou he beha iou o ou a iables and hei ela ionships.
3.1. Da a and sou ces
The da a used ha e been compiled om di e en sou ces ha ha e been me ged in o an
o iginal and unique da ase . Due o da a a ailabili y, we conside 66 de eloping coun-
ies, and he econome ic analysis ocuses on he pe iod 2000–2020. All da a a e
summa ized in Table 1. Excep o da a collec ed on unce ain y which a e qua e ly
and ans o med in o annual equency, he emaining da a collec ed a e annual.
Table 1. De ini ion o a iables.
Va iables De ini ion Uni Sou ce
Income inequali y Gini coe icien . Index Wo ld Bank
Wo ld Unce ain y Wo ld Unce ain y index. Index Ahi e al. (2022)
Economic Policy
Unce ain y
Economic Policy Unce ain y index Index Bake e al. (2016)
T ade Policy Unce ain y T ade Policy Unce ain y index Index Calda a e al. (2020)
Income (log) GDP pe capi a in cons an p ices USD Wo ld Bank
Assis ance (log) Ne o icial de elopmen assis ance and o icial aid ecei ed. USD Wo ld Bank
Educa ion School en olmen , e ia y (% g oss). Ra io Wo ld Bank
Sou ce: Au ho s.
USD cons an p ices.
JOURNAL OF APPLIED ECONOMICS 7
ypes, he e o e obus and elimina e, hus, he po en ial bias ha could a ise om
he wo-s ep es ima ion.
7
4. Resul s
This sec ion p esen s and discusses esul s om he es ima ions o baseline equa ion.
Then, obus ness es s a e conduc ed o consolida e he di e en esul s ob ained.
4.1. O e all esul s
The esul s p esen ed in Table 2 a e ob ained by he GMM es ima o . These esul s a e
alid om bo h an economic and an econome ic pe spec i e. Indeed, he use o GMM
equi es some condi ions. The ou comes o he diagnos ic es s ha allow o he
checking o he consis ency o he wo-s ep sys em GMM app oach a e epo ed a he
bo om o he able.
The A ellano and Bond es s a e designed o assess he p esence o se ial au oco ela ion in
dynamic panel eg ession e o s. They a e based on he empi ical momen s o he e o s and
he heo e ical momen s expec ed in he case whe e he e is no au oco ela ion. The idea is o
compa e hese momen s in o he o de ec any signi ican se ial co ela ion. These es s a e
impo an because he au oco ela ion o e o s can bias he pa ame e es ima es and a ec
he s a is ical p ope ies o he es ima es. I au oco ela ion is p esen , i may be necessa y o
adjus he model speci ica ion o ake hese co ela ions in o accoun in he es ima ion. In
p ac ice, i is expec ed, o he alidi y o he model, a p esence ( espec i ely an absence) o he
au oco ela ion o o de 1 (AR (1)) ( espec i ely o o de 2 (AR(2)). This is in line wi h he
esul s p esen in Table 2 which indica e ha , no ma e he column (1 o 2), he null
hypo hesis associa ed wi h he AR(1) es is ejec ed (p- alue �0.05) and ha o AR(2)
canno be ejec ed (p- alue �0.10).
In addi ion, esul s o he Sa gan’s es indica e ha he ins umen s a e alid, i means
ha he condi ions o he alidi y o he ins umen al momen s a e sa is ied and ha he
es ima es ob ained using he GMM model a e e icien and consis en . In o he wo ds,
since he null hypo hesis is no ejec ed (p- alue �0.10), hen he ins umen s used a e
exogenous and ha e no sys ema ic bias. Mo eo e , he esul s o he Hansen es unde -
line ha he addi ional ins umen s a e alid and a e no edundan in he model. Indeed,
he null hypo hesis no being ejec ed (p- alue �0.10), hen he ins umen s added o he
GMM model a e no co ela ed wi h he e o s o he model and p o ide use ul
in o ma ion o he es ima ion o pa ame e s o he model. The alidi y o a o emen-
ioned es s ensu es he obus ness o esul s ob ained om he GMM.
Mo eo e , he esul s p esen ed in Table 2 show ha no ma e he es ima e (1 o 2), an
imp o emen in he lagged dependen a iable o o de 1 is associa ed, a he 1% h eshold, wi h
an inc ease in he le el o income inequali y. This esul a es s o he ele ance o he use o
a dynamic model in ou s udy and con i m he pe sis en p oblem o income inequali y o en
7
Th ough he use o he “collapse” command, he S a a so wa e gua an ees a small numbe o ins umen s used which
does no exceed he numbe o obse a ions, in o de o be able o es ima e he model in an unbiased way, which
a oids po en ially he p oblem o ins umen p oli e a ion (Roodman, 2009).Indeed, wi h oo many ins umen s, which
exceeds he numbe o obse a ions, he endogenous a iables can be o e -p esen ed by hei ins umen s, hence he
isk o pe sis ence o he endogenei y p oblem.
14 L. KEBALO AND S. ZOURI
no ed in de eloping coun ies (Kebalo e al., 2022). In addi ion, he esul s show ha unce ain y
inc eases income inequali y in de eloping coun ies. Thus, a 1-poin imp o emen in Wo ld
Unce ain y is associa ed, a he 1% h eshold, wi h an inc ease in Gini index (income inequali y)
by 3.163-poin s (column 1) and 3.231-poin s (column 2). Indeed, households a e no simila ly
a ec ed by unce ain y. Weal hy households, mos o he ime a e mo e esilien han poo and
ulne able households o unce ain y shocks. Du ing pe iods o unce ain y and when nega i e
e ec s occu , poo , ulne able and middle-income households ha e di icul y in he mobiliza ion
o esou ces equi ed o mi iga e he e ec s on hei wel a e. The same is no necessa ily ue o
weal hy households. The di ec consequence will be he inc ease in income inequali y, especially
when social measu es such as cash ans e s, subsidies o necessi ies, ax b eaks and banking
acili ies o example, a e no aken by policymake s in a ou o poo and ulne able households.
Fu he mo e, he esul s show ha de eloping coun ies wi h a iscal de ici ha e, a he 5%
h eshold, a highe le el o income inequali y (+0.312-poin ) han coun ies wi hou a iscal de ici
(column 1). O he esul s e eal ha no ma e he es ima e (1 o 2), an imp o emen in pe
capi a income ( espec i ely educa ion le el, o icial de elopmen assis ance) con ibu es, a he 1%
Table 2. Baseline esul s.
Explana o y a iables
Models
Model 1
(wi h iscal de ici s)
Model 2
(wi h iscal su pluses)
In e cep -11.448*** -2.353***
(1.711) (0.266)
Income inequali y (one lag) 1.004*** 0.960***
(0.015) (0.005)
Wo ld Unce ain y 3.163*** 3.231***
(0.285) (0.160)
Fiscal de ici (DummyDe ici ) 0.312**
(0.131)
Wo ld Unce ain y �Fiscal de ici (DummyDe ici ) 0.366
(0.408)
Fiscal su plus (DummySu plus) -0.163***
(0.018)
Wo ld Unce ain y �Fiscal su plus (DummySu plus) -2.241***
(0.107)
Income (log) 3.847*** 1.472***
(0.623) (0.099)
Assis ance (log) -0.041*** -0.028***
(0.006) (0.001)
Educa ion (%) -0.083*** -0.042***
(0.009) (0.002)
Obse a ions 472 472
Numbe o ins umen s 52 52
Diagnos ic es s
Sa gan es (p- alue) 0.148 0.428
Hansen es (p- alue) 0.661 0.506
A ellano-Bond: AR (1) in i s di e ence -4.16 -4.01
[0.000] [0.000]
A ellano-Bond: AR(2) in i s di e ence -0.69 -0.60
[0.491] [0.548]
Lagged alues da ed 2 o 5 pe iods o he dependen a iable (-1), Wo ld Unce ain y index, Fiscal de ici
(DummyDe ici ), Wo ld Unce ain y index �Fiscal de ici (DummyDe ici ) [column 1]; Fiscal su plus (DummySu plus),
Wo ld Unce ain y index �Fiscal su plus (DummySu plus) [column 2]; and Te ia y educa ion a e used as ins umen s.
Lagged a iables da ed 1 o 12 pe iods o he o he a iables (Income pe capi a and O icial De elopmen
Assis ance) a e used as ins umen s. (.) Robus s anda d de ia ion. *** p<0.01; ** p<0.05; * p<0.1. [.] p- alues.
Sou ce: Au ho s’ es ima es.
JOURNAL OF APPLIED ECONOMICS 15
h eshold, o inc easing he le el o income inequali y ( espec i ely o educe he le el o income
inequali y). Mo e p ecisely, a 1% imp o emen in pe capi a income is associa ed, a he 1%
h eshold, wi h an inc ease in Gini index by 0.039-poin (column 1) and 0.015-poin (column 2).
A 1-poin imp o emen in o icial de elopmen assis ance (ODA) is associa ed, a he 1%
h eshold, wi h a dec ease in Gini index by 0.0004-poin (column 1) and 0.0003-poin (column 2).
Also, a 1-poin imp o emen in e ia y educa ion is associa ed, a he 1% h eshold, wi h
a dec ease in Gini index by 0.0008-poin (column 1) and 0.0004-poin (column 2).
These esul s a e in line wi h he li e a u e. Indeed, Thye e al. (2021) demons a e ha an
inc ease in pe capi a income wo sen income inequali y, when he inc ease in pe capi a income
mainly bene i s high-income g oups. Ba uo e al. (2022) show ha an o icial de elopmen
assis ance, by s eng hening essen ial social se ices, can help o educe po e y and imp o e
he li ing condi ions o low-income people. Dou and Kebalo (2021) indica e ha he imp o e-
men o he le el o educa ion o educa ional policies is an impo an d i e o he educ ion o
income inequali y.
In add essing he challenge o income inequali y, educa ion and de elopmen assis-
ance ha e an impo an ole o play. Public au ho i ies mus pu mo e emphasis on he
expansion o educa ion, educa ional policies, and he ma ching o he educa ion sys em
o labou ma ke needs (Abdullah e al., 2015; Kebalo e al., 2022; Tchamyou e al., 2019).
Indeed, when a la ge po ion o he popula ion is be e educa ed, hey can unde ake
p i a e ini ia i es o weal h c ea ion, ha e expec a ions abou e en s ha may gene a e
mo e unce ain y, and hen be mo e esilien o na ional and wo ld dis u bances. This
could con ibu e o educing he exis ing income gap be ween weal hy households and
he es o he popula ion. In addi ion, ac ions mus be ca ied ou wi hin he amewo k
o s eng hening he e ec i eness o de elopmen assis ance. Imp o ing e ec i eness
means ensu ing ha he assis ance p o ided o de eloping coun ies ac ually helps hem
o imp o e he li ing condi ions o he poo es popula ions. To do his, aid mus be uly
a ge ed on he de elopmen p io i ies se by he coun ies hemsel es.
Table 2 shows ha de eloping coun ies wi h a iscal su plus ha e, a he 1% h eshold, a low
le el o income inequali y (-0.163-poin ) han coun ies wi hou a iscal su plus (column 2).
Mo eo e , he esul s indica e ha he iscal su plus limi s he impac o unce ain y on income
inequali y. Bu mo e impo an , when he unce ain y inc eases by 1-poin , he coun ies
p esen ing a iscal su plus ha e, a he 1% h eshold, a low le el o income inequali y (-2.241-
poin s) han coun ies wi hou a iscal su plus (column 2).
O e all, we hink ha ou esul s a e consis en wi h he eali ies in de eloping
coun ies. Indeed, ou esul s highligh one o he eali ies in de eloping coun ies.
Howe e , obus ness es s a e conduc ed o consolida e he di e en esul s ob ained.
4.2. Al e na i e measu es o unce ain y
In his sec ion, we eplace successi ely he Wo ld Unce ain y index by he Economic
Policy Unce ain y (EPU) index and he T ade Policy Unce ain y (TPU) index in o he
o show ha , no ma e he unce ain y measu e is used, iscal su plus con ibu es o
mi iga e he posi i e e ec s o unce ain y on income inequali y.
Resul s p esen ed in Tables 3 and 4 show ha , no ma e he measu e used (EPU index o
TPU index), unce ain y con ibu es o inc easing income inequali y. Indeed, acco ding o
Table 3, a 1-poin imp o emen in EPU index is associa ed, a he 1% h eshold, wi h an inc ease
16 L. KEBALO AND S. ZOURI
in Gini index by 0.002-poin (column 1) and 0.006-poin (column 2). Acco ding o Table 4,
a 1-poin imp o emen in TPU index is associa ed, a he 1% h eshold, wi h an inc ease in Gini
index by 0.002-poin (column 1) and 0.003-poin (column 2). In addi ion, Table 3 indica es ha
de eloping coun ies wi h a iscal de ici ha e, a he 5% h eshold, a highe le el o income
inequali y (+0.141-poin ) han coun ies wi hou a iscal de ici (column 1). Mo eo e , he esul s
show ha he iscal de ici exace ba e he impac o unce ain y on income inequali y. In ac ,
when he EPU index inc eases by 1-poin , coun ies p esen ing a iscal de ici ha e, a he 1%
h eshold, a highe le el o income inequali y (+0.004-poin ) han coun ies wi hou a iscal
de ici . Fu he mo e, Table 3 shows ha de eloping coun ies wi h a iscal su plus ha e, a he 1%
h eshold, a low le el o income inequali y (-0.174-poin ) han coun ies wi hou a iscal su plus
(column 2).
Also, esul s indica e ha when he EPU index inc eases by 1-poin , coun ies p esen ing
a iscal su plus ha e, a he 1% h eshold, a low le el o income inequali y (-0.003 poin ) han
coun ies wi hou a iscal su plus (column 2). The sign o he coe icien s o he o he explana o y
a iables a e in line wi h heo e ical expec a ions.
Table 3. Robus ness es : baseline esul s conside ing economic policy unce ain y.
Explana o y a iables
Models
Model 1
(wi h iscal de ici s)
Model 2
(wi h iscal su pluses)
In e cep -12.271*** -5.066***
(0.346) (0.566)
Inequali y (one lag) 0.916*** 0.924***
(0.003) (0.002)
Economic Policy Unce ain y 0.002*** 0.006***
(0.0001) (0.0004)
Fiscal de ici (DummyDe ici ) 0.141**
(0.061)
Economic Policy Unce ain y �Fiscal de ici (DummyDe ici ) 0.004***
(0.0005)
Fiscal su plus (DummySu plus) -0.174***
(0.084)
Economic Policy Unce ain y �Fiscal su plus (DummySu plus) -0.003***
(0.005)
Income (log) 5.442*** 2.885***
(0.106) (0.188)
Assis ance (log) -0.0501*** -0.035***
(0.003) (0.001)
Educa ion (%) -0.111*** -0.067***
(0.001) (0.002)
Obse a ions 472 472
Numbe o ins umen s 52 52
Diagnos ic es s
Sa gan es (p- alue) 0.294 0.276
Hansen es (p- alue) 0.658 0.536
A ellano-Bond: AR (1) in i s di e ence -3.97 -3.94
[0.000] [0.000]
A ellano-Bond: AR(2) in i s di e ence -0.17 -0.26
[0.866] [0.792]
Lagged alues da ed 2 o 5 pe iods o he dependen a iable (-1), Wo ld Unce ain y index, Fiscal de ici (DummyDe ici ),
Wo ld Unce ain y index �Fiscal de ici (DummyDe ici ) [column 1]; Fiscal su plus (DummySu plus), Wo ld Unce ain y
index �Fiscal su plus (DummySu plus) [column 2]; and Te ia y educa ion a e used as ins umen s. Lagged a iables
da ed 1 o 12 pe iods o he o he a iables (Income pe capi a and O icial De elopmen Assis ance) a e used as
ins umen s. (.) Robus s anda d de ia ion. *** p<0.01; ** p<0.05; * p<0.1. [.] p- alues.
Sou ce: Au ho s’ es ima es.
JOURNAL OF APPLIED ECONOMICS 17
Table 4 indica es ha de eloping coun ies wi h a iscal de ici ha e, a he 1% h eshold,
a highe le el o income inequali y (+0.162-poin ) han coun ies wi hou a iscal de ici (col-
umn 1). Mo eo e , he esul s show ha when he TPU index inc eases by 1-poin , coun ies
p esen ing a iscal de ici ha e, a he 1% h eshold, a highe le el o income inequali y (+0.005-
poin ) han coun ies wi hou a iscal de ici . Fu he mo e, Table 4 shows ha de eloping
coun ies wi h a iscal su plus ha e, a he 1% h eshold, a low le el o income inequali y
(0:219-poin ) han coun ies wi hou a iscal su plus (column 2). Finally, esul s show ha
when he TPU index inc eases by 1-poin , coun ies p esen ing a iscal su plus ha e, a he 1%
h eshold, a low le el o income inequali y (0:002-poin ) han coun ies wi hou a iscal su plus
(column 2). The sign o coe icien s o o he explana o y a iables a e in line wi h heo e ical
expec a ions.
Thus, no ma e he measu e o unce ain y, iscal de ici ( espec i ely iscal su plus) con ibu es
o inc easing ( espec i ely o mi iga e) he posi i e e ec s o unce ain y on he income inequali y.
These esul s a e no su p ising inso a as a coun y’s iscal posi ion e lec s i s abili y o sel -
inance, as soon as possible, a ge ed expendi u es o mi iga e he nega i e socio-economic e ec s
o unce ain y o c ises. As de eloped abo e, households a e no impac ed in he same way by
Table 4. Robus ness es : baseline esul s conside ing ade policy unce ain y.
Explana o y a iables
Models
Model 1
(wi h iscal de ici s)
Model 2
(wi h iscal su pluses)
In e cep -5.440*** -3.242***
(0.585) (0.837)
Inequali y (one lag) 0.964*** 0.938***
(0.002) (0.005)
T ade Policy Unce ain y 0.002*** 0.003***
(0.0002) (0.0005)
Fiscal de ici (DummyDe ici ) 0.162***
(0.020)
T ade Policy Unce ain y �Fiscal de ici (DummyDe ici ) 0.005***
(0.0004)
Fiscal su plus (DummySu plus) -0.219**
(0.110)
T ade Policy Unce ain y�Fiscal su plus (DummySu plus) -0.002**
(0.001)
Income (log) 2.472*** 2.109***
(0.173) (0.248)
Assis ance (log) -0.022*** -0.016***
(0.001) (0.002)
Educa ion (%) -0.060*** -0.052***
(0.002) (0.004)
Obse a ions 472 472
Numbe o ins umen s 52 52
Diagnos ic es s
Sa gan es (p- alue) 0.183 0.182
Hansen es (p- alue) 0.569 0.739
A ellano-Bond: AR (1) in i s di e ence -3.93 -3.95
[0.000] [0.000]
A ellano-Bond: AR(2) in i s di e ence -0.37 -0.37
[0.715] [0.714]
Lagged alues da ed 2 o 5 pe iods o he dependen a iable (-1), Wo ld Unce ain y index, Fiscal de ici (DummyDe ici ),
Wo ld Unce ain y index �Fiscal de ici (DummyDe ici ) [column 1]; Fiscal su plus (DummySu plus), Wo ld Unce ain y
index �Fiscal su plus (DummySu plus) [column 2]; and Te ia y educa ion a e used as ins umen s. Lagged a iables
da ed 1 o 12 pe iods o he o he a iables (Income pe capi a and O icial De elopmen Assis ance) a e used as
ins umen s. (.) Robus s anda d de ia ion. *** p<0.01; ** p <0.05; * p<0.1. [.] p- alues.
Sou ce: Au ho s’ es ima es.
18 L. KEBALO AND S. ZOURI
unce ain y shocks and he ollowing economic consequences. Thus, o a oid he inc ease in he
income gap be ween he weal hy and poo people, coun ies wi h iscal su pluses ake economic
and social measu es as soon as possible o suppo he poo and ulne able households. In
esponse o he ad e se e ec s o unce ain y, hese coun ies use iscal su pluses o make social
ans e s o poo and ulne able households, o subsidize p ices o essen ial goods, and o suppo
Small and Medium-sized En e p ises (SMEs) h ough ax educ ions and banking acili ies
(gua an ees) o ins ance.
Mo eo e , de eloping coun ies wi h iscal de ici s will be less eac i e in implemen ing he
socio-economic policies men ioned abo e o suppo poo and ulne able households. They will
be he e o e emp ed o adop cyclical iscal policies which o en esul in a educ ion o public
expendi u es and/o an inc ease in ax a es du ing pe iods o unce ain y and c isis (Alesina
e al., 2008; Bénassy-Qué é e al., 2016). This di icul y in inancing he equi ed policies would
educe he esilience o poo and ulne able households is-à- is weal hy households and hen
will inc ease income inequali y.
The abo e ac o s he e o e explain why, despi e he p esence o unce ain y, de eloping
coun ies wi h a iscal su plus ha e lowe income inequali y han de eloping coun ies wi h
a iscal de ici . These in e es ing esul s e eal he impo an socio-economic s abilizing ole ha
iscal policy managemen plays du ing pe iods o unce ain y.
5. Conclusion and policy ecommenda ions
Gi en wa nings o in e na ional de elopmen ins i u ions abou a po en ial inc ease in
income inequali y in he Wo ld due o unce ain y a ising om he COVID-19 pandemic
and he Russia-Uk aine wa , we ha e conduc ed an empi ical in es iga ion on he e ec
o unce ain y on income inequali y in de eloping coun ies o e he pe iod 2000–2020.
To ha e eliable esul s, he gene alized me hod o momen s was used. Resul s show ha
unce ain y, no ma e he measu e used, inc eases income inequali y. In addi ion, he
esul s indica e ha , in he p esence o unce ain y, iscal de ici ( espec i ely iscal
su plus) con ibu es o inc easing ( espec i ely o mi iga e) he posi i e e ec s o unce -
ain y on he income inequali y. These esul s e eal he impo an socio-economic
s abilizing ole ha iscal policy managemen plays du ing pe iods o unce ain y.
Mo eo e , we ind ha an imp o emen in pe capi a income ( espec i ely educa ion
le el, o icial de elopmen assis ance) con ibu e o inc easing ( espec i ely o educing)
he le el o income inequali y. F om he abo e, i appea s ha :
●Imp o ing iscal discipline in de eloping coun ies is c ucial o os e ing sus-
ainable economic g ow h, educing po e y, enhancing inancial s abili y and,
he eby, educing income inequali y. Fo ha , de eloping coun ies should ocus
hei spending on key sec o s such as educa ion, heal h, basic in as uc u e and
u al de elopmen . This can inc ease p oduc i i y and imp o e people’s li ing
condi ions, which is essen ial o educing income inequali y. Fu he mo e, de el-
oping coun ies mus a oid excessi e accumula ion o public deb . I is impo an o
main ain a sus ainable le el o deb o a oid he isk o inancial c isis and excessi e
in e es paymen s. In addi ion, de eloping coun ies need o de elop e icien and
ai ax sys ems o inc ease hei in e nal e enues. This may include b oadening he
ax base, na owing ax loopholes and imp o ing ax collec ion mechanisms.
JOURNAL OF APPLIED ECONOMICS 19
Simila ly, go e nmen subsidies should be p ecisely a ge ed o help ulne able
popula ions wi hou was ing esou ces. Re o ms o educe ine icien subsidies
can ee up unds o o he p io i ies. Finally, de eloping coun ies should in es
in building he skills and capaci ies o go e nmen ins i u ions esponsible o
budge managemen . This can lead o be e planning, implemen a ion and e alua-
ion o iscal policies.
●Inc easing he le el o educa ion in de eloping coun ies is key o educing
income inequali y, by p omo ing economic, social and human de elopmen .
In doing so, de eloping coun ies mus alloca e adequa e esou ces o he
educa ion sec o , inc easing budge s o building schools, aining eache s,
pu chasing eaching ma e ials and implemen ing quali y educa ional p og ams.
In addi ion, coun ies should s i e o p o ide equi able educa ional access o all,
ega dless o gende , e hnici y, economic s a us o geog aphy. This may in ol e
he cons uc ion o schools in u al and emo e a eas, as well as ini ia i es o
encou age he schooling o gi ls and disad an aged child en. Fu he mo e,
educa ional p og ams mus be adap ed o local and cul u al needs, while includ-
ing essen ial skills such as digi al skills. Also, in o ma ion and communica ion
echnologies can be used o imp o e access o educa ion and o p o ide in e -
ac i e educa ional esou ces, especially in egions whe e educa ional in as uc-
u e is limi ed. Finally, de eloping coun ies mus emo e he cul u al, social and
economic ba ie s ha p e en gi ls om accessing educa ion.
●S eng hening he e ec i eness o o icial de elopmen assis ance is impo an o
maximizing he bene i s o aid and os e ing sus ainable de elopmen in ecipien
coun ies and, he e o e, educing income inequali ies. To achie e his, dono s should
align hei aid p og ams wi h he de elopmen p io i ies o ecipien coun ies. This implies
be e coo dina ion wi h na ional plans and s a egies. Fu he mo e, o icial de elopmen
assis ance (ODA) should be di ec ed owa ds he achie emen o speci ic and measu able
de elopmen objec i es. P ojec s should be designed wi h clea indica o s o assess hei
impac . In addi ion, dono s and ecipien coun ies should be anspa en in hei ac ions
and expendi u es. Mu ual accoun abili y can help ensu e e ec i e use o unds. Finally,
ODA- unded p ojec s should aim o s eng hen local sys ems, de elop skills and c ea e
sus ainable in as uc u e, a he han simply p o iding empo a y elie .
Acknowledgmen s
We hank anonymous e e ees o hei aluable commen s and sugges ions. We hank Kimonique
Powell, Mosu u Olukayodé Alli, and Syl ie Sanou o he p oo eading se ice.
Disclosu e s a emen
No po en ial con lic o in e es was epo ed by he au ho (s).
No es on con ibu o s
Léleng Kebalo, PhD, co esponding au ho . Economis a he Cen al Bank o Wes A ican S a es
(BCEAO). He was a Young P o essional a he Wo ld T ade O ganiza ion (WTO) when he a icle
20 L. KEBALO AND S. ZOURI
was w i en. His esea ch in e es s include mac oeconomics, public inance, ade and
de elopmen .
S éphane Zou i, PhD, wo ks a he Cen al Bank o Wes A ican S a es (BCEAO) as an
Economis . Holde o a PhD in economics om he Uni e si y o Pa is 1 Pan heon So bonne
and Pa is School o Economics, his esea ch in e es s include mac oeconomic dynamics, in e na-
ional ade and egional in eg a ion.
ORCID
Léleng Kebalo h p://o cid.o g/0000-0003-0108-8967
S éphane Zou i h p://o cid.o g/0000-0001-5384-4643
Disclaime
The iews exp essed in his pape a e hose o he au ho s and do no necessa ily e lec hose o
hei ins i u ions.
Re e ences
Abdullah, A., Doucouliagos, H., & Manning, E. (2015). Does educa ion educe income inequali y? A me a‐
eg ession analysis. Jou nal o Economic Su eys, 29(2), 301–316. h ps://doi.o g/10.1111/joes.12056
Adjo , D. M., & Kebalo, L. (2018). Does co up ion ma e o unemploymen in SADC coun ies?
Re iew o Economic and Business S udies, 11(2), 65–92. h ps://doi.o g/10.1515/ ebs-2018-0074
Ahi , H., Bloom, N., & Fu ce i, D. (2022). The wo ld unce ain y index. Wo king pape No.
w29763. Na ional bu eau o economic esea ch.
Alesina, A., Campan e, F. R., & Tabellini, G. (2008). Why is iscal policy o en p ocyclical? Jou nal o he
Eu opean Economic Associa ion, 6(5), 1006–1036. h ps://doi.o g/10.1162/JEEA.2008.6.5.1006
Alesina, A., & D azen, A. (1991). Why a e s abiliza ions delayed? The Ame ican Economic Re iew,
81(5) , 1170–1188. h ps://doi.o g/10.3386/w3053
Alesina, A., & Pe o i, R. (1996). Income dis ibu ion, poli ical ins abili y, and in es men .
Eu opean Economic Re iew, 40(6), 1203–1228. h ps://doi.o g/10.1016/0014-2921(95)00030-5
Ame oglo, M. E. S., Guo, P., & Wony a, K. O. (2018). Regional in eg a ion and income inequali y
in ECOWAS zone. Jou nal o Economic In eg a ion, 33(3), 604–627. h ps://doi.o g/10.11130/
jei.2018.33.3.604
Anyanwu, J. C., E hijakpo , A. E., & Obi, E. (2016). Empi ical analysis o he key d i e s o income
inequali y in Wes A ica. A ican De elopmen Re iew, 28(1), 18–38. h ps://doi.o g/10.1111/
1467-8268.12164
A ellano, M., & Bond, S. (1991). Some es s o speci ica ion o panel da a: Mon e Ca lo e idence
and an applica ion o employmen equa ions. The Re iew o Economic S udies, 58(2), 277–297.
h ps://doi.o g/10.2307/2297968
A melius, H., Hull, I., & Köhle , H. S. (2017). The iming o unce ain y shocks in a small open
economy. Economics Le e s, 155, 31–34. h ps://doi.o g/10.1016/j.econle .2017.03.016
Bake , S. R., Bloom, N., & Da is, S. J. (2016). Measu ing economic policy unce ain y. Qua e ly
Jou nal o Economics, 131(4), 1593–1636. h ps://doi.o g/10.1093/qje/qjw024
Balcila , M., Beki os, S., & Gup a, R. (2017). The ole o news-based unce ain y indices in
p edic ing oil ma ke s: A hyb id nonpa ame ic quan ile causali y me hod. Empi ical
Economics, 53(3), 879–889. h ps://doi.o g/10.1007/s00181-016-1150-0
Ba uo, M. E., Ka a ach, G., & Malki, I. (2022). The dynamics o income inequali y in A ica: An
empi ical in es iga ion on he ole o mac oeconomic and ins i u ional o ces. Wo ld
De elopmen , 157, 105939. h ps://doi.o g/10.1016/j.wo ldde .2022.105939
JOURNAL OF APPLIED ECONOMICS 21
Bénassy-Qué é, A., Rago , X., & Wol , G. (2016). Quelle union budgé ai e pou la zone eu o ?
No es Du Conseil D’analyse Économique, n° 29(2), 1–12. h ps://doi.o g/10.3917/ncae.029.0001
Be nanke, B. S. (1983). I e e sibili y, unce ain y, and cyclical in es men . Qua e ly Jou nal o
Economics, 98(1), 85–106. h ps://doi.o g/10.2307/1885568
Bicaba, Z., B ixio á, Z., & Ncube, M. (2017). Can ex eme po e y in sub-saha an A ica be
elimina ed by 2030? Jou nal o A ican De elopmen , 19(2), 93–110. h ps://doi.o g/10.5325/
ja ide e.19.2.0093
Bloom, N. (2009). The impac o unce ain y shocks. Econome ica, 77(3), 623–685. h ps://doi.
o g/10.3982/ECTA6248
Bloom, N. (2014). Fluc ua ions in unce ain y. Jou nal o Economic Pe spec i es, 28(2), 153–76.
h ps://doi.o g/10.1257/jep.28.2.153
Blundell, R., & Bond, S. (1998). Ini ial condi ions and momen es ic ions in dynamic panel da a
models. Jou nal o Econome ics, 87(1), 115–143. h ps://doi.o g/10.1016/S0304-4076(98)00009-8
Bon iglioli, A., C inò, R., & Gancia, G. (2022). Economic unce ain y and s uc u al e o ms:
E idence om s ock ma ke ola ili y. Quan i a i e Economics, 13(2), 467–504. h ps://doi.o g/
10.3982/QE1551
Bou guignon, F. (2004). The po e y-g ow h-inequali y iangle. New Delhi: Indian council o
Resea ch on In e na ional economic ela ions (ICRIER). Wo king Pape No 125. h ps://www.
econs o .eu/bi s eam/10419/176147/1/ic ie -wp-125.pd
B ueckne , M., & Vespignani, J., (2017, Ma ch 28). T ade unce ain y and income inequali y.
CAMA Wo king Pape No. 24/2017. h ps://doi.o g/10.2139/ss n.2942479
Caggiano, G., Cas elnuo o, E., & Figue es, J. M. (2017). Economic policy unce ain y and
unemploymen in he Uni ed S a es: A nonlinea app oach. Economics Le e s, 151, 31–34.
h ps://doi.o g/10.1016/j.econle .2016.12.002
Caggiano, G., Cas elnuo o, E., & G oshenny, N. (2014). Unce ain y shocks and unemploymen
dynamics in US ecessions. Jou nal o Mone a y Economics, 67, 78–92. h ps://doi.o g/10.1016/j.
jmoneco.2014.07.006
Calda a, D., Iaco iello, M., Molligo, P., P es ipino, A., & Ra o, A. (2020). The economic e ec s o
ade policy unce ain y. Jou nal o Mone a y Economics, 109, 38–59. h ps://doi.o g/10.1016/j.
jmoneco.2019.11.002
Ch is iano, L. J., Mo o, R., & Ros agno, M. (2014). Risk shocks. The Ame ican Economic Re iew,
104(1), 27–65. h ps://doi.o g/10.1257/ae .104.1.27
Da is, S. J. (2016). An index o global economic policy unce ain y. Na ional Bu eau o Economic
Resea ch, NBER Wo king Pape No. 22740.
Dixi , R. K., Dixi , A. K., & Pindyck, R. S. (1994). In es men unde unce ain y. P ince on
uni e si y p ess.
Dou , H., & Kebalo, L. (2021). T ade in ensi y, iscal in eg a ion and income inequali y in
ECOWAS. S a is ics, Poli ics, and Policy, 12(2), 375–394. h ps://doi.o g/10.1515/spp-2021-0008
Fang, L., Chen, B., Yu, H., & Qian, Y. (2018). The impo ance o global economic policy
unce ain y in p edic ing gold u u es ma ke ola ili y: A GARCH‐MIDAS app oach. Jou nal
o Fu u es Ma ke s, 38(3), 413–422. h ps://doi.o g/10.1002/ u .21897
Fawaz, F., Rahnamamoghadam, M., & Valca cel, V. (2012). Fluc ua ions, unce ain y and income
inequali y in de eloping coun ies. Eas e n Economic Jou nal, 38(4), 495–511. h ps://doi.o g/
10.1057/eej.2011.32
Fe nandez, R., & Rod ik, D. (1991). Resis ance o e o m: S a us quo bias in he p esence o
indi idual-speci ic unce ain y. The Ame ican Economic Re iew, 81(5), 1146–1155. h ps://
www.js o .o g/s able/2006910
Fische , M. M., Hube , F., & P a ho e , M. (2021). The egional ansmission o unce ain y
shocks on income inequali y in he Uni ed S a es. Jou nal o Economic Beha io and
O ganiza ion, 183, 887–900. h ps://doi.o g/10.1016/j.jebo.2019.03.004
Galb ai h, J. K. (1977). The age o unce ain y. Hough on Mi lin.
Ghi elli, C., Pé ez, J. J., & U asun, A. (2019). A new economic policy unce ain y index o Spain.
Economics Le e s, 182, 64–67. h ps://doi.o g/10.1016/j.econle .2019.05.021
22 L. KEBALO AND S. ZOURI
Gilch is , S., Sim, J. W., & Zak ajšek, E. (2014). Unce ain y, inancial ic ions, and in es men
dynamics. NBER Wo king Pape No w20038. Na ional Bu eau o Economic Resea ch.
Handley, K., & Limão, N. (2022). T ade policy unce ain y. Annual Re iew o Economics, 14(1),
363–395. h ps://doi.o g/10.1146/annu e -economics-021622-020416
Huang, Y., & Luk, P. (2020). Measu ing economic policy unce ain y in China. China Economic
Re iew, 59, 101367. h ps://doi.o g/10.1016/j.chieco.2019.101367
Kebalo, L., Dou , H., Coucho o, M. K., & Zou i, S. (2022). In ég a ion–comme ciale, budgé ai e,
inanciè e– égionale e inégali és de e enu dans la Communau é Economique des E a s de
l’A ique de l’Oues (CEDEAO). A ican De elopmen Re iew, 34(S1), S102–S116. h ps://doi.
o g/10.1111/1467-8268.12647
Kinda, H., & Thiombiano, N. (2021). The e ec s o ex ac i e indus ies en on de o es a ion in
de eloping coun ies. Resou ces Policy, 73, 102203. h ps://doi.o g/10.1016/j. esou pol.2021.102203
Knigh , F. H. (1921). Risk, unce ain y and p o i (Vol. 31). Hough on Mi lin.
Newey, W. K., & Windmeije , F. (2009). Gene alized me hod o momen s wi h many weak
momen condi ions. Econome ica, 77(3), 687–719. h ps://doi.o g/10.3982/ECTA6224
Obiako , R. T., Akpa, E. O., & Okwu, A. T. (2022). Economic size, unce ain y, and income
inequali y in Nige ia. Jou nal o Economics and Allied Resea ch, 7(2), 250–264. h ps://ss n.com/
abs ac =4151748
Pas o , L., & Ve onesi, P. (2012). Unce ain y abou go e nmen policy and s ock p ices. The
Jou nal o Finance, 67(4), 1219–1264. h ps://doi.o g/10.1111/j.1540-6261.2012.01746.x
Pie ce, J. R., & Scho , P. K. (2016). The su p isingly swi decline o US manu ac u ing employmen . The
Ame ican Economic Re iew, 106(7), 1632–62. h ps://doi.o g/10.1257/ae .20131578
Rancii e, R. G., & To nell, A. (2016). Why do e o ms occu in c ises imes? SSRN Elec onic
Jou nal. h ps://doi.o g/10.2139/ss n.2796251
Rome , C. D. (1990). The g ea c ash and he onse o he g ea dep ession. Qua e ly Jou nal o
Economics, 105(3), 597–624. h ps://doi.o g/10.2307/2937892
Roodman, D. (2009). How o do X abond2: An in oduc ion o di e ence and sys em GMM in
s a a. The S a a Jou nal, 9(1), 86–136. h ps://doi.o g/10.1177/1536867X0900900106
S igli z, J. (2015). The o igins o inequali y, and policies o con ain i . Na ional Tax Jou nal, 68(2),
425–448. h ps://doi.o g/10.17310/n j.2015.2.09
Tchamyou, V. S., Asongu, S. A., & Odhiambo, N. M. (2019). The ole o ICT in modula ing he
e ec o educa ion and li elong lea ning on income inequali y and economic g ow h in A ica.
A ican De elopmen Re iew, 31(3), 261–274. h ps://doi.o g/10.1111/1467-8268.12388
Theophilopoulou, A. (2022). The impac o mac oeconomic unce ain y on inequali y: An empi i-
cal s udy o he Uni ed Kingdom. Jou nal o Money, C edi , and Banking, 54(4), 859–884.
h ps://doi.o g/10.1111/jmcb.12852
Thye, G. L., Kuma i, S. S., Lu, Y. S., & Muhai ah, S. S. (2021). The impac s o ex e nal and in e nal
unce ain ies on income inequali y in he ASEAN 5 coun ies. In e na ional Jou nal o
Economics & Managemen , 15(3). h p://ep in s.um.edu.my/id/ep in /36063
Tommasi, M., & Velasco, A. (1996). Whe e a e we in he poli ical economy o e o m? Jou nal o
Policy Re o m, 1(2), 187–238. h ps://doi.o g/10.1080/13841289608523362
Windmeije , F. (2005). A ini e sample co ec ion o he a iance o linea e icien wo-s ep GMM
es ima o s. Jou nal o Econome ics, 126(1), 25–51. h ps://doi.o g/10.1016/j.jeconom.2004.02.005
Zalla, R. (2017). Economic policy unce ain y in I eland. A lan ic Economic Jou nal, 45(2),
269–271. h ps://doi.o g/10.1007/s11293-017-9536-8
JOURNAL OF APPLIED ECONOMICS 23
