PUBLIC EXPENDITURE AND INCOME INEQUALITY IN EMERGING ECONOMIES: A CROSS-COUNTRY STUDY OF BRICS

Abstract

Revenue disparity is a chronic social economic challenge within the developing economies, despite a consistent GDP growth and increased state expenditure. Inequality Income distribution differences persist as a factor in many BRICS states as a result of uneven economic opportunities, imbalance in labour market and macroeconomic instability. It is on this ground that the current study analyses the nexus between public expenditure and income inequality in the emerging economies using a cross-country analysis of Brazil, Russia, India, China, and South Africa. The research is also supported by the Keynesian fiscal policy framework and redistributive theory of government expenditure which all stresses on government spending ability to correct the market failure and promote a more equitable income distribution. The analysis is based on the data of the international databases of World Bank World Development Indicators, IMF World Economic Outlook, OECD Fiscal Statistics, and the World Inequality Database using balanced panel data between 1990 and 2025. The empirical strategy involves a three- steps estimation process that involves pre- estimation, middle estimation, and post- estimation. The first stage was the descriptive statistics and correlation analysis, and the second was the panel unit-root testing using the level of Levin-Lin-Chu and Im-Pesaran-Shin. Pedroni and Kao were used as subsequent panel cointegration follow-up tests to establish long-run interrelations between variables of interest. The major estimation method involves the Panel Autoregressive Distributed Lag (P 2 -ARDL) model that is estimated using the Pooled Mean Group (PMG) estimator. To measure robustness, Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) estimators were used as well. Serial correlation tests, heteroskedasticity and cross sectional dependence tests were also done. The empirical data show that recurrent public expenditure (= -0.0214, p = 0.01) and capital public expenditure (= -0.0182, p = 0.01) significantly reduce income inequality over the long-run. Economic growth has a similar adverse impact on inequality ( = -.0071, p = 0.01), but inflation (= 0.0043), unemployment ( = 0.0132), and fluctuations in exchange rates ( = 0.0065) increase inequalities. Trade openness also helps to decrease income differences (= -0.0094, p <.01). These findings are supported by robustness tests done with FMOLS and DOLS. To sum up, government spending in emerging economies is quite central to reducing incomes disparity. The paper, therefore, suggests enhancing investment in social and productive sectors, coming up with policies that would help in achieving sustainable economic growth and employment opportunities, adopting macroeconomic stability policies to minimise inflation and exchange-rate volatility, and pursuing strategic trade policies that will lead to inclusive economic participation.