Essays on inequality and public finance

The three essays comprising this dissertation are united by a common thread: a recognition that income inequality is not merely an outcome of economic processes but an active determinant of how policies operate, the productivity with which resources are utilized, and how institutions evolve. The channels through which inequality shapes these outcomes are by no means uniform - they vary meaningfully across geographic, institutional, and developmental settings. The essays collectively make the case that understanding inequality requires attending to context, and that policies and institutions which appear effective in the aggregate may conceal considerable heterogeneity beneath the surface. Section 1: Geographic Variation in the Marginal Value of Public Funds This paper applies the Marginal Value of Public Funds framework to calculate and compare the welfare impacts of the Earned Income Tax Credit (EITC) across the United States from 1993 to 2016 across three program expansions. Focusing on the effects on women aged 18-64 (a target demographic for this policy), the paper first replicates the methodology of Bastian characteristics such as poverty, income inequality, unemployment, and state welfare generosity. As a result, the paper concludes that measures of negative economic impact (such as poverty, high levels of inequality, and unemployment) reduce the net return on the additional dollar invested in EITC by increasing the burden on the local government’s budget, while the results for the positive measure of welfare generosity have more noise. Results are robust to several different classifications and extensions, and regression estimates suggest that the results are driven by both revenue and labor force participation effects. Section 2: Income Inequality and Total Factor Productivity This paper investigates the possibility of a non-linear relationship between income inequality and total factor productivity. Using unbalanced panel data including up to 62 countries over a period of 50 years (taken in five year increments), GMM estimation techniques were employed (namely the two-step difference GMM and the System GMM). Twenty different specifications under five different subsets were used for robustness. The inequality measure was statistically significant and positive and its squared value was statistically significant and negative in all regressions with the Gini measure, and the Top 10%’s share of income had the same signs but these were not always significant. The results establish an inverse-U relationship between income inequality and aggregate productivity, with the turning point being higher for developing (non-OECD) countries. Section 3: EU Accession, Anti-Corruption Reforms, and Income Inequality This paper applies a two-part empirical strategy to investigate whether EU accession-driven anti-corruption reforms reduced income inequality in Romania, Bulgaria, and Croatia. Using World Bank Enterprise Survey data on firm-level corruption matched to SWIID inequality measures, the analysis first documents the association between corruption and inequality, then employs a difference-in-differences design with EU accession as a quasi-natural experiment. Results suggest that while accession reduced bribery incidence, the effects on income inequality are driven primarily by Bulgaria’s independent upward inequality trajectory rather than by accession itself. Romania shows the most promising evidence that institutional reform can coexist with inequality reduction, while Croatia’s recent accession limits inference. JEL Codes: C23; D04; D24; D31; D61; D63; D73; D78; F55; H23; H24; H53; I32; I38; J22; O47; P48Keywords: Income inequality, earned income tax credit, marginal value of public funds, total factor productivity, corruption, EU accession, anti-corruption reform, geographic variation, GMM estimation, difference-in-differences, poverty