Do fiscal and monetary policies contribute to income distribution? Empirical evidence from Central Asian Countries

Abstract This study examines the impacts of macroeconomic policies (i.e., fiscal policy by government consumption spending, and total tax revenue, and monetary policy by broad money and real interest rate) along with some other regressors namely inflation, gross domestic product (GDP) per capita, remittances, exchange rate, and financial development on income distribution in four Central Asian countries over 1995–2020. After employing the unit root tests, we implemented the Autoregressive Distributed Lag (ARDL)/Pooled Mean Group (PMG) approach for empirical analysis. Empirical result reveals that both fiscal and monetary policies have positive and negative impacts on income inequality. Empirical results also exhibit that inflation increases income inequality, while financial development, per capita income, and more inflow of foreign remittances decrease inequality in the panel and individual countries analysis. These empirical findings suggest that coordinated policies need to be adopted along with the increase in remittances, financial sector development to attenuate income inequality. JEL Codes: E62; E63; D63