Inequality, Inefficiency and Australia’s System of ‘Horizontal Fiscal Equalization’

posted by Saul Eslake on September 6, 2017 - 9:21am

This is my keynote address to a Workshop on Federal Relations and Tax Reform hosted by the University of Adelaide’s School of Economics, in Adelaide on 29th August. Download the full presentation here.

The subject of inequality in the distribution of income and wealth has been an increasing focus of research and discussion by and among economists in recent years, in Australia and in many other countries. That partly reflects a growing awareness that inequality in the distribution of income and wealth has been increasing, in Australia and elsewhere (see, for example, Dollman et al 2015, Whiteford 2015a). And, at least for economists, it reflects a growing (though by no means universal) consensus that (beyond some point) increasing inequality detracts from economic growth  (Causa et al 2014; Cingano 2014; Ostry et al 2014; DablaNorris et al 2015).  

One dimension of inequality which seems to have attracted less attention than others, including in Australia, is that of ‘spatial inequality’ - that is, inequality between or among different regions within a country.  According to the OECD, “the spatial concentration of income inequality has been increasing everywhere” (OECD 2016).  In countries with federal systems of government, like Australia, subnational governments typically play an important role in shaping and implementing public policies with regard to education, health, housing and other areas which in turn have a key influence on the well-being of and life opportunities available to their citizens.