Public capital and income inequality: some empirical evidence

Economies vary in their reliance on public or private capital accumulation, and this variation has long been believed to lead to different distribution outcomes. In this paper, we take the share of public capital in total capital stock and public capital per GDP as the main explanatory variables. We then estimate the effect that capital ownership has on income inequality by using a panel data consisting of 145 economies in the period from 1980 to 2015. Our empirical results show that a higher ratio of public capital in total capital stock could lower the Gini coefficients of both original and disposable income distribution. Furthermore, we note that public capital per GDP is a sound measurement of public investment’s accumulative contribution to the economy and find that it reduces income inequality, while private capital per GDP affects income inequality in the opposite direction. Accounting for the heterogeneity in development level, we further find that the negative effect that public capital has on income inequality is much more salient among low- and middle-income countries.