Download or read book Essays on Sovereign Debt Default, Fiscal Austerity and Income Inequality written by Vivian Norambuena and published by . This book was released on 2015 with total page 204 pages. Available in PDF, EPUB and Kindle. Book excerpt: The second chapter explores the question of whether fiscal adjustment programs have been regressive or progressive in advanced economies. Does fiscal austerity have an adverse effect on income inequality? If this is the case, then controlling only for observed variables in the estimation of the income inequality equation would be insufficient, leading to inaccurate inference regarding the true distributional effect of a fiscal adjustment. In other words, there could be some unobserved factors influencing both the probability of a fiscal adjustment and the income distribution process. These unobserved features could be persistent over time -like deep institutional characteristics or social preferences towards inequality that have been shaped by the history, culture or demography of a country - or time-varying, such as the government's ability to implement sound fiscal policies. The main finding is that fiscal austerity significantly increases income inequality, an impact that is particularly understated when time-varying endogeneity is not accounted for. This suggests that low-income households are disproportionately bearing the costs of fiscal austerity.