Policymakers are pressured to introduce policies intended to make income distribution or consumption more equal. To identify the public spending differences among countries should be compared homogeneous country samples. The income could be classified based on different scenarios such as past conditions, initial conditions, exceptional skills, and luck.
The tax system can also influence the retirement age, the size of families, and individual effort, which are all features that directly impact income distribution. Public spending depends on spending power among the population the government steps in with taxes and related tax expenditures, and some relevant regulatory policies.
Public spending that injects income or spending power into the hands of individuals, through cash payment or direct support for spending that is important for poorer individuals (food stamps, subsidized housing, free child care for working mothers,
Subsidized tariffs for low levels of consumption of public utilities, etc.) have a clear effect on income distribution. public spending can have indirect but still significant effects on the distribution of income in other ways that mainly improve productivity and opportunities to find a job disproportionately for the less well-off.
There is a relatively strong correlation between the change in income distribution as measured by the change in the income share of the poorest 40% of households and the change in public spending between 1960 and 2000. This has been changed due to income changes and spending such as more consideration on essentials due to the COVID-19 pandemic. Regulation quality and the size of the shadow economy appear to be less strongly correlated.
